Accounting Periods Allowed for Tax Purposes

Accounting periods refer to established time ranges throughout which financial functions are performed and analyzed by an accountant. In particular, a tax year is used as a basis to determine one’s taxable year. There are two accounting periods allowed for tax purposes: a fiscal year and a calendar year. As the name suggests, a calendar year includes twelve consecutive months that begin on January 1 and end on December 31. In turn, a fiscal year means twelve calendar months that do not start on January 1 and do not end on December 31. Both periods are used by companies, depending on many factors, for instance, the seasonality of the business.

A calendar year is used as a tax year by many companies and individuals. Generally, flow-through entities such as limited liability companies, small business corporations, and partnerships that use a calendar year accounting period must file their tax returns no later than March 15. For C corporations taxed separately from their owners, the deadline for the calendar year is April 15 if they choose this accounting period. This approach is considered intuitive and straightforward since it coincides with the regular year.

A fiscal year is a tax period that can present a more accurate view of a firm’s performance in some cases, such as seasonal businesses that do not operate within a single calendar year. As a rule, this accounting period is 52 to 53 weeks long. Flow-through companies that use a fiscal year for tax purposes must file their tax returns by the 15th day of the third month that comes after their fiscal year’s close. For C corporations adopting this approach, it is the 15th day of the fourth month. Moreover, for firms using a fiscal year, the same period must be used for reporting expenses and income.

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