Q: Since I haven’t had any clients and thus made no profit, what would I put for my fiscal year-end on my EIN application?
Thank you to a client from California for that great question! Many of our clients ask questions about adopting a fiscal year, so we wanted to address this question in our blog. A fiscal year is a 12-month period that businesses use for filing taxes, financial reporting, and budgeting. Most businesses choose a fiscal year that aligns with the calendar year—starting on January 1st and ending on December 31st. However, businesses can use any 12-month period for their fiscal year. We’ll explain what a fiscal year is and why you might want to use a fiscal year instead of the calendar year.
Purpose of the fiscal year
Your fiscal year is your business’ tax year. Businesses are required to file taxes by the 15th day of the fourth month of their fiscal year. For businesses that use the calendar year as their tax year, the tax due date is April 15th. However, you can choose whatever 12-month period you want as your fiscal year. For example, your business’s fiscal year could begin on July 1st and end on June 30th. In that case, your taxes would be due by October 15th.
It’s important to know your business’ fiscal year, not only for filing taxes but also when planning your annual budget and assessing your business’ profits and losses for the year. When applying for grants and loans or recruiting investors, you’ll need to know your fiscal year to accurately report your business revenue.
Check out our state-specific How to Start a Business guides.
Why use the fiscal year instead of the calendar year?
There are a few reasons why businesses and nonprofits might use a fiscal year. Seasonal businesses sometimes choose a fiscal year that ends after their most profitable season. For example, many retail chains use a fiscal year that starts on February 1st and ends on January 31st, coinciding with the end of the holiday season. Nonprofits typically use a fiscal year running from July 1st to June 30th to align with grant awards. The US federal government’s fiscal year begins on October 1st and ends on September 30th.
52-53 week fiscal year
Instead of using a 12-month fiscal year, some businesses choose a 52-53 week fiscal year, where the tax year ends on the same day of the week every year. For example, the fiscal year for Macy’s ends on the fifth Saturday at the beginning of the calendar year. With this type of fiscal year, some tax years will have 52 weeks, and others will have 53 weeks.
How to adopt a fiscal year
Adopting a tax year for your business is simple—just file your first income tax return following that fiscal year and write your fiscal year on the tax return. If you apply for an Employer Identification Number (EIN), you’ll put your fiscal year-end on the application. Once you adopt a fiscal year, you must keep using the same fiscal year, unless you apply with the IRS to change it.
How do I change my fiscal year?
If you want to change your fiscal year, you must file Form 1128, Application to Adopt, Change, or Retain a Tax Year with the IRS.
Who can’t use a fiscal year?
According to the IRS, certain taxpayers must use a calendar year rather than a fiscal year. Here are the cases in which you must use the calendar year as your tax year:
- You keep no books or records.
- You have no annual reporting period.
- Your present tax year doesn’t qualify as a fiscal year.
- You’re required to use the calendar year by the Internal Revenue Code or the Income Tax Regulations.