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Fiscal Year vs Calendar Year Differences

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Last editedMar 20223 min read

Whether you’re preparing financial statements or filing taxes, it’s important to understand the difference between a fiscal year and a calendar year. While both periods last for 365 days or twelve months, the start and end dates will vary. In this article, we’ll take a closer look at the definition of fiscal and calendar year, as well as key differences between them.

What is a fiscal year?

A fiscal year covers a consecutive period of twelve months and is used for calculating and preparing financial statements for the year. It’s used by nonprofit organizations, businesses, and governments for accounting and budgeting. Both revenue and earnings are included in financial statements, so by using consistent fiscal years it makes it easy for investors to compare these figures from one year to the next.

The start and end dates of a fiscal year will depend on the country a company does business in. Some will naturally align with the calendar year running from Jan. 1 to Dec. 31, but many don’t. For example, the U.S. federal government uses Oct. 1 to Sept. 30 as its fiscal year, while many nonprofit organizations use July 1 to June 30.

What is a calendar year?

As with a fiscal year, a calendar year also describes a consecutive twelve-month period. However, it begins on New Year’s Day and ends on the last day of the year. For countries like the United States that follow the Gregorian calendar, this means it begins on Jan. 1 and ends on Dec. 31. Businesses using the calendar year for financial reporting will prepare their statements based on transactions taking place between these dates.

Calendar year reporting is widely used throughout the business world due to its simplicity. For example, both Facebook and Amazon use these dates for financial reports and tax purposes.

Does the IRS require a fiscal or calendar year?

The IRS allows companies to file as either calendar-year or fiscal-year taxpayers, provided that the records are kept consistent from year to year. For smaller businesses that might not keep detailed records, the IRS requires the use of calendar year reporting. One thing to note is that the IRS uses the calendar year as its own default system, meaning fiscal-year filers must adjust deadlines to make payments and file required forms. For example, those using the calendar year system would file by the usual April 15 deadline. However, those using their own fiscal year must file by the 15th day of the fourth month of the fiscal year, whenever that may fall.

Key differences between fiscal year vs calendar year

Here’s a quick and easy breakdown of the core differences between fiscal and calendar years:

  • A calendar year always begins on New Year’s Day and ends on the last day of the month (Jan. 1 to Dec. 31 for those using the Gregorian calendar). A fiscal year can start on any day and end precisely 365 days later.

  • Calendar years are easier for tax reporting because they fall in line with the IRS’s own systems. While fiscal years can be used, they require more complex auditing and accounting.

  • A fiscal year keeps income and expenses together on the same tax return, while a calendar year splits them into two.

  • Calendar years enable easier year-to-year comparisons between businesses, compared to two companies using different fiscal years.

How to choose between fiscal year and calendar year

There are advantages to both fiscal years and calendar years. Benefits of using a fiscal year include:

  1. Better consideration of seasonal profit for companies that experience the bulk of their sales during a specific season.

  2. The potential to avoid hefty tax burdens for businesses that experience income and expenses in different parts of the tax year.

By contrast, there are also benefits to using a calendar year, including:

  1. Easier tax filing due to alignment with the IRS systems and individual tax filing deadlines.

  2. Universal use makes like-for-like comparison easier between different businesses.

There are benefits to both systems, so you’ll need to think about your business’s own patterns and accounting needs. Seasonal businesses often benefit from using a fiscal year that gives wider flexibility to tax reporting and liability. Yet for subscription businesses with steady revenue throughout the year, a calendar year might be the better option.

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