Choosing a Fiscal Year for Your Business
When setting up a new business, one of the decisions that owners must make is to choose a fiscal year for the business. A fiscal year can be any 52-week period used by a business for tracking financial information and reporting it. Choosing a fiscal year is an important decision for any business because it affects when a business must produce financial statements and pay taxes. While many businesses decide to use the calendar year as their fiscal year, meaning that a business year runs from January 1 to December 31, other businesses find it beneficial to use a different fiscal year for their company.
Regulations on the Fiscal Year
Laws and regulations on fiscal years vary from state to state. In Texas, individuals who operate a sole proprietorship must use the same fiscal year as their personal tax year, which is typically the calendar year. Similarly, a partnership must use a fiscal year that matches the tax year used by the majority of the partners. S corporations are required to use the calendar year as well. C corporations, however, are free to choose whatever fiscal year best fits the natural seasonality of the business.
Fiscal Year Options
Many new corporations choose to operate on a calendar year basis because this is the default choice, but the company may be actually disadvantaged by a calendar fiscal year. For many businesses, the holiday season around New Year’s is one of the busiest times of the year, so this can be an inconvenient time to have to deal with yearly financial reporting. In general, once you have filed taxes for your new business, it is impossible to change your fiscal year with the IRS.
Instead, some businesses may benefit from choosing a fiscal year that lines up with one of the yearly quarters: March 31, June 30, or September 30. These are often less busy times of the year when a company is better able to wrap up and report its financial information. Before deciding on a fiscal year for your business, be sure to consider the seasonality of your business and how the timing could be arranged to best fit the needs of your company.
Contact Us
To learn more about fiscal year considerations and other important steps in setting up your new business, do not hesitate to contact the Texas business formation attorneys of Texas Legal Entities today at 512-472-2431.
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