For those that aren’t familiar with the world of tax years, here’s a quick lesson. Adopting a calendar year means you must maintain your books and records , and report income and expenses from Jan. 1 through Dec. 31 each year.
A taxpayer who files a first tax return based on the calendar year can get stuck with it. If the taxpayer later begins a business as a sole proprietor, becomes a partner in a partnership , or becomes a shareholder in an S corporation, the taxpayer must continue to use the calendar year — unless the IRS approves a change.
On the other hand, if you select an accounting period of 12 consecutive months ending on the last day of any month other than December, the tax year you’ve chosen is a fiscal year. A 52-53 week tax year is a fiscal year that varies from 52 to 53 weeks. Once a business owner selects a fiscal year, that owner must maintain books and records and report income and expenses using the same tax year each time.
If you are a business owner who has decided to use a fiscal year, you can elect to use a 52-53 week tax year as long as you report your records, income and expenses along those lines. Your tax year will be 52 or 53 weeks long and will always end on the same day of the week. (There might be 53 because some years have, for example, 53 Fridays in them.) This same day of the week will either be the one that last occurs in a particular month or is closest to the last day of a particular calendar month.
Here is What the Internal Revenue Service Has to Say
You must compute taxable income on the basis of a tax year. A “tax year” is an annual accounting period for keeping records and reporting income and expenses. The tax years you can use are:
A Calendar Year or a Fiscal Year
If you adopt a calendar year, you must maintain your books and records and report your income and expenses from January 1 through December 31 of each year. Generally, anyone can adopt the calendar year. However, if any of the following apply, you are required to adopt the calendar year.
- You do not keep adequate records.
- You have no annual accounting period.
- Your present tax year does not qualify as a fiscal year.
- A fiscal year is 12 consecutive months ending on the last day of any month except December. If you adopt a fiscal year, you must maintain your books and records and report your income and expenses using the same tax year.
If you operate a business as a sole proprietor, the tax year for your business must be the same year as your individual tax year. For any other form of business, special rules apply. Publication 538, Accounting Periods and Methods (PDF), describes these rules.