A company's fiscal year is its financial year. Fiscal year is stated as of the last day of the year; December 31, for example. Most companies use either the end of the calendar year (December 31) or the end of a quarter (March 31, June 30, or September 30) as their fiscal year end date.
Having a fiscal year for your business is necessary for tax purposes. In the same way as for personal taxes, a business reports on its total net income as of the end of the fiscal year, as a basis for tax calculation. The fiscal year is also the time when the company takes stock internally, determines inventory, and reports annual earnings to shareholders.
What is the Best Date for Fiscal Year End?
Fiscal year end dates are set using two criteria:
- Type of business. A sole proprietorship, or a business that is taxed as a sole proprietorship (single-member LLC, for example) must use a December 31 fiscal year-end to match the personal tax year end.
- Business cycle. If your business is not taxed as a sole proprietorship, you can choose the end of any quarter for your fiscal year end. Most companies base their fiscal year end of the business cycle for their industry, choosing the end of the busiest time for their fiscal year end. Companies that do most of their business in the summer might choose a September 30 year end. If your business does a lot of work with the U.S. government, you might choose a September 30 year end to coincide with the federal government's year end. If your business does most of its selling during the holidays, you might choose December 31.
Before you set your fiscal year-end date, check with your tax adviser.
