The term “fiscal year” is often used in accounting. Many businesses use it to categorize their financial information. Rather than grouping transactions by the calendar year in which they occurred, they group transactions by the fiscal year in which they occurred. Below are five common questions and answers about fiscal years in accounting.
#1) Are Fiscal Years the Same as Calendar Years?
Fiscal years are not the same as calendar years. A calendar year begins on January 1 and ends on December 31. A fiscal year, on the other hand, can begin and end on different dates. It’s simply a year-long accounting period that’s used to categorize financial information.
#2) How Long Are Fiscal Years?
While they can start and end on different dates, fiscal years are always 12 months long. Like calendar years, they consist of 365 days that span a 12-month period. The main difference is that calendar years always begin on January 1 and end on December 31. Fiscal years, on the other hand, may or may not begin and end on these dates. They may begin on February 1, for instance, and end on January 31st.
#3) Does the IRS Allow Fiscal Years for Tax Filings?
You might be wondering whether the Internal Revenue Service (IRS) allows fiscal years for tax filings? When filing your taxes, you’ll have to submit income and business-related expenses for the given year. The IRS typically requires the use of calendar years for tax filings. With that said, the IRS does make exceptions. To use fiscal years when filing taxes, you’ll have to get approval from the IRS. Only after getting the IRS’s approval can use fiscal years when filing taxes.
#4) What Benefits Does Fiscal Year Accounting Offer?
Fiscal year accounting offers benefits over calendar year accounting. Many businesses use it to delay tax liabilities. It won’t eliminate the burden of taxes. Rather, fiscal year accounting allows businesses to postpone the date on which tax liabilities must be paid.
#5) Can You Switch From Calendar Year to Fiscal Year Accounting?
Even if you’ve used calendar year accounting in the past, you may be able to switch to fiscal year accounting. With that said, switching to fiscal year accounting can be difficult. It also requires the approval of the IRS. For these reasons, you may want to continue using calendar year accounting, assuming you’ve already been using it.
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