MightyRecruiterKnowing the ins and outs of the tax world can be one of the most challenging hurdles a business owner or employer can face. But being aware of basic tax facts will benefit you, your business, and your employers in the short and the long-term. Here are a few frequently asked questions that concern income taxes and the periods they cover. Knowing and understanding the answers to these inquiries will make you even more of a benefit to your company and put your mind at ease when tax time comes.
FAQ
1. When do I start my income tax year?
Let’s get the basics down first. A tax year is an annual accounting period that usually spans twelve consecutive months and determines your taxable income for that year-long period. There are two kinds of tax years, a calendar year and a fiscal year. While a calendar year goes from January 1 to December 31, a fiscal year is a 12-month period that may end on the last day of any month but December. A 52- or 53-week fiscal year is one that does not have to end on the last day of the month.
There are certain regulations about who must use a calendar tax year. If any of the following apply to you, you must go by the calendar:
- If you don’t keep bookkeeping records.
- If you don’t have an annual accounting period.
- If the tax year that you are currently in cannot be considered a fiscal year.
- If other Internal Revenue Service regulations require you to use a calendar year.
If any of the above apply to you, your income tax year will begin on the first day of the calendar year, January 1.
2. What if my business has changed and I want to switch from calendar year to fiscal year filing?
This is a scenario that may occur if you start off marking your income tax year from January 1 to December 31, but something changes within your business, which will then affect when your tax year starts. Perhaps you’ve recently become a partner within a business partnership or you become the sole proprietor of your business. However, it is not permissible to go ahead and simply switch over from calendar to fiscal year filing. You must first get permission from the Internal Revenue Service, or be under some other provision that allows you to change your filing method without permission. Until then, continue using the calendar year to begin your income tax period.
3. What if I’m a first-time tax filer?
Has your business never filed a tax return before? You are considered a first-time filer and have the option to either start your income tax year on January 1 or another date that culminates after twelve months on the last day of a month that is not December, for example, February 1 to January 31. By adopting either a calendar tax year or a fiscal tax year, you are giving up your right to change it without permission from the Internal Revenue Service.
It is worth noting that if you have simply paid your estimated taxes for a 12-month period, filed an application for an Employer Identification Number, or put in an application for an extension on a tax return, you have not officially chosen a tax year format.
When preparing to begin your income tax year for your small business, keep an open mind and make an informed choice about whether it makes more sense for you to utilize a calendar year or a fiscal year. Depending on what type of establishment your business is, and what its qualifications are, you will be able to select the right start date for your income tax period.
Legal Disclaimer
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.