It’s usually a good idea for small companies to find out when the tax year begins. Yet, before making any decisions, you should be aware of your possibilities.
Your taxable income is calculated using a ‘tax year,’ which is any 12-month period in which you maintain records and report income and expenditures.
Your taxable income is calculated using a “tax year,” which is a year period of your choice. As a result, a tax year may be any of the following:
Both fiscal and calendar tax years cover the same length of time, so choose the one that works best for your company. Adopting a tax year is as simple as submitting your first income tax return, since the date of that return starts your tax year. Nevertheless, if any of the following apply to you, you must use the tax calendar year:
You have not adopted a tax year if you apply for an employment ID number, submit an extension on your income tax return, or pay anticipated taxes for a tax year. If you file your initial tax return using the calendar tax year and subsequently establish a company or become an owner, you must continue to use the calendar tax year unless you get IRS permission to change. Form 1128, Application to Adopt, Modify, or Maintain a Tax Year, must be filed to get approval. When you alter your accounting period, you’ll pay taxes on a “short tax year” of fewer than 12 months until you file for a complete tax year under your new accounting plan the following time. Short tax years also occur for persons born or died within the tax year, since a tax return is still needed for the time that person was alive.
As a small company owner, you should look into the IRS’s small business calendar, which may help you organize and plan ahead.