When you start a business or form a corporation, partnership or limited liability company, your company will become subject to income tax. The income tax return that you will file is based on a tax year, usually 12 consecutive months, and it is commonly referred to as an annual accounting period. One can choose one of two kinds of tax years:
(i) Calendar year – 12 consecutive months beginning January 1 and ending December 31. A person must use a calendar tax year if no annual accounting period has been established, no books and records are kept, or if IRS provision require the use of a calendar year.
(ii) Fiscal year – 12 consecutive months ending on the last day of any month except December. If you are allowed to adopt a fiscal year, you must maintain your books and records and report your income and expenses using the same tax year.
You adopt a tax year by filing your first income tax return using that tax year. If you file your first tax return using the calendar tax year, and later wish to change to a fiscal year accounting period, you must seek IRS approval for the change on IRS Form 1128.
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