Tax Year

A tax year is a period used for calculating annual income tax returns. It is commonly a calendar year but can also be a fiscal year, which is any consecutive 12-month period that does not necessarily start on January 1st.
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What is a Tax Year?

A tax year is the 12-month period a taxpayer uses for determining their income and filing taxes. There are two primary types of tax years: the calendar year and the fiscal year.

  1. Calendar Year: This runs from January 1 to December 31. Most individual taxpayers and businesses use the calendar year for their tax filings.
  2. Fiscal Year: Any 12-month period that ends on the last day of any month other than December. For example, a fiscal year may run from April 1 to March 31 of the following year.

Examples

Example 1: Individual Taxpayer
John, an employee, uses a calendar tax year. His income earned from January 1, 2023, to December 31, 2023, will be reported on his 2023 tax return filed in 2024.

Example 2: Business with Fiscal Year
XYZ Corporation opts for a fiscal year running from July 1 to June 30. Thus, their fiscal year 2023 refers to the income and expenses from July 1, 2022, to June 30, 2023.

Frequently Asked Questions

Q1: Must all businesses use a calendar year for their tax year?
A1: No, businesses can elect to use a fiscal year instead of a calendar year, provided they maintain consistent and accurate accounting records.

Q2: Can a taxpayer change their tax year?
A2: Yes, but changing a tax year typically requires permission from the Internal Revenue Service (IRS), and it can involve specific forms and potentially complex conditions.

Fiscal Year: Defines any consecutive 12-month period for accounting purposes that does not start on January 1.

Tax Return: A form filed with a tax authority that reports income, expenses, and other pertinent tax information.

Gross Income: Total income earned before any deductions or taxes are applied.

Adjusted Gross Income (AGI): Gross income minus specific adjustments, often used as a benchmark for determining eligibility for tax deductions and credits.

Tax Deduction: Reductions from taxable income to decrease total tax liability.

Online Resources

Suggested Books for Further Studies

  1. “Tax Savvy for Small Business” by Frederick W. Daily
  2. “J.K. Lasser’s Your Income Tax” by J.K. Lasser Institute
  3. “Income Tax Fundamentals” by Gerald E. Whittenburg and Martha Altus-Buller

Accounting Basics: Tax Year Fundamentals Quiz

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