IT IS IMPORTANT to choose a fiscal year, e.g. a year for filing a business’ tax returns, when one starts a business.  All companies, be they small or large, have to file their tax returns for financial reporting.  As a business owner, when you are in the process of choosing the fiscal year, it is good to have all the necessary information about the business.

What do you mean ‘choose a fiscal year’?

There are two types of calendars used when filing tax returns: the normal calendar year that starts on January 1st and ends on December 31st, and the fiscal calendar year, which varies in date from business to business.  This is due to the start and end of when the business is slow and busy.  The fiscal calendar is chosen by the business and can start between July 1st and June 31st.   

It is essential to always file your business’ tax returns on the same day every year.  This is because there will be times when business is busy, and other times when business is slow.  If your business is like most, it’s always busy during the December holidays. As such, you might want to choose a fiscal year that starts on February 1st.  This way, you can wait to do your taxes after the holiday boom, around mid-to-late January.

Choosing a fiscal year that is a quarter before or after the normal tax season has saved many companies the agony of having to do their tax calculations when all of their employees are filing their own tax returns.  In the beginning of the year, the employees are filing in their tax returns and so having a fiscal year end on the same day would not be advisable.  In general, unless you have a very good and explainable reason as to why you want to change you business’ fiscal year, it is virtually impossible to change once it has been established.

If your business is ready to choose a fiscal year, all of the above have to be taken into consideration so as not to fall on the wrong side of the law nor to be late in filling the returns.  The last thing you want as a new business, after all, is to be audited while you’re trying to build a business.