Though many businesses use the standard calendar year of January 1 through December 31, there are a few businesses that use other fiscal years, such as July 1 through June 30 or the federal government's example of October 1 through September 30. But why do these businesses use different fiscal years and how do you help business clients determine when it makes sense to use a different fiscal year instead of a standard calendar year?
Generally speaking, the type of business organization will help determine how easily a different fiscal year can be implemented. Businesses that have not been established as a corporation, including partnerships and sole proprietors, are required to petition the IRS for special consideration to use a fiscal year instead of a calendar year. This means the company must to document the need for this type of arrangement. Corporations are allowed to choose whatever period they want for a fiscal year, because corporations file their own taxes, while the other organization types file income as part of the business owner's annual income taxes.
A fiscal year is any period of 12 full months starting any other time than the first of January. They can make sense for a number of different situations. If a business creates expenses in the fall and income in the spring, having a July to June fiscal year allows expenses and income from the same fiscal year to appear on the same tax year. If a company is planning on using a funding push, such as a Kickstarter campaign, which provides high income later in the year but production starts in January, this can create a high income one year that doesn't reflect the expenses of production following the campaign the next year. Are some of your biggest customers using a different calendar, such as the federal government? Matching their fiscal year can make it easier to keep in line with their operations.
When you take these issues into consideration, it can be easier to understand why business clients may choose to use a non-standard fiscal year. It can also make it easier to take advantage of the benefits by having the company's revenues reflect their special circumstances.
