What is a fiscal year?
A fiscal year, or financial year, is an accounting period that governments, companies, and other organizations use for taxation and financial reporting purposes. The fiscal year can start on any day and ends either 12 consecutive months or 52/53 weeks later.
Example fiscal years include:
October 1 through September 30 of the following year (12 months)
November 1 through October 31 of the following year (12 months)
52/53 weeks ending on the Friday closest to December 31
A fiscal year is designated by the calendar year on which the last day of the fiscal year falls. For example, the U.S. government’s fiscal year 2019 (or FY2019) started on October 1, 2018 and will end on September 30, 2019.
Differences between fiscal year and calendar year
The calendar year starts on January 1 and ends on December 31, while a fiscal year can start on any day of the calendar year. Most businesses use a fiscal year that corresponds with the calendar year.
There are two main causes for this: First, it’s significantly more convenient and second, certain types of legal entities must report their owners’ annual financial report as well as the company’s.
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Determining your fiscal year
While many governments around the world adopt the calendar-year fiscal year, the fiscal year dates and tax reporting deadlines vary by country, state, and tax jurisdiction. When starting a business it’s important to do your research and comply with the applicable laws relevant to your country and entity type. Work the right fiscal year into your bookkeeping and small business accounting plans.
Unconventional fiscal years
There are a few reasons an eligible company might choose to adopt an unconventional fiscal year. For example, seasonal businesses often choose to close out their books at the end of their active period to correspond with their natural business year.
Many accountants offer discounts to clients whose fiscal years end during the off-season. This means you can save on taxes and auditing services by closing your books in March or April, rather than at the end of the calendar year.