If you currently use calendar years for accounting, you might be wondering whether switching to fiscal years is worth it. Calendar years and fiscal years both consist of 365 days. Calendar years simply begin on January 1 and end on December 31. Fiscal years, on the other hand, can begin on any day of the year and end 12 months later. A fiscal year can end during any month except for December. The U.S. Internal Revenue Service (IRS) doesn’t allow businesses to use fiscal years that end in December. When should you consider using fiscal years for accounting exactly?
#1) Seasonal Sales
Businesses that generate seasonal sales often use fiscal years for accounting. From commercial landscaping and pressure washing to pool installation and more, countless businesses generate seasonal sales. Seasonal sales means most if not all of their sales occur during a specific time of year, such as the summer or winter. If your business falls under this category, you may want to use fiscal years for accounting. You can specify your own 12-month accounting period.
#2) Alleviate Taxes
You should consider using fiscal years for accounting to alleviate taxes. While some businesses incur major expenses in December, others incur major expenses during the beginning of a calendar year. In other words, they buy goods and services from vendors at the beginning of the year. Using fiscal years for accounting will allow you to claim these expenses on your business’s taxes. You can receive deductions for expenses — even if those expenses occurred in January or February.
#3) Smoother Tax Filings
Another reason to consider using fiscal years for accounting is smoother tax filings. April is a busy time of year for the IRS. It receives and processes millions of tax filings during this month. If you use calendar years for accounting, you’ll have to submit your business’s taxes by the April due date. Switching to fiscal years, though, will allow you to choose a different month. And by doing so, you can expect a faster, smoother filing process.
#4) Save Money on Professional Accounting and Tax Services
You may even save money on professional accounting and tax services by switching to fiscal years. Professional accountants may charge less for their services during the slow months of the year. Since most businesses, as well as people, use calendar years, April is typically their busiest month. Using calendar years means you’ll have to file your business’s taxes by the due date in April. Fiscal years, though, will allow you to choose a different 12-month period. As a result, you may save money on professional accounting and tax services.
What are your thoughts on fiscal year accounting? Let us know in the comments section below!