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Table of Contents
Introduction
When it comes to tracking financial performance, there are two commonly used time frames: fiscal year and calendar year. While both are used to report financial information, there are distinct differences between the two. In this article, we will explore the differences between fiscal year and calendar year.
What is a Fiscal Year?
A fiscal year is a 12-month period that is not necessarily aligned with the calendar year. It is used by businesses and organizations for financial reporting and budgeting purposes. A fiscal year can start on any date, and it typically ends on the last day of a month other than December.
What is a Calendar Year?
A calendar year is a 12-month period that starts on January 1st and ends on December 31st. It is the most commonly used time frame for tracking time and is used by individuals and businesses alike.
Key Differences between Fiscal Year and Calendar Year
Reporting
One of the key differences between fiscal year and calendar year is the reporting periods. In a fiscal year, financial reports are generated based on the 12-month period that was established by the organization. In a calendar year, financial reports are generated based on the 12-month period that starts on January 1st and ends on December 31st.
Tax Season
Another difference between fiscal year and calendar year is when tax season occurs. For businesses that use a fiscal year, tax season is typically later in the year because their fiscal year end date is not December 31st. For businesses that use a calendar year, tax season occurs early in the year because their reporting period ends on December 31st.
Question and Answer
Q: Why do some businesses use a fiscal year instead of a calendar year?
A: Some businesses use a fiscal year instead of a calendar year because it aligns better with their industry. For example, a retail business may use a fiscal year that ends in January to better align with their peak sales season.
Q: Can an individual use a fiscal year for tax purposes?
A: No, individuals are required to use a calendar year for tax purposes.
Q: Can a business change their fiscal year?
A: Yes, a business can change their fiscal year. However, they must follow specific procedures and obtain approval from the IRS.
Conclusion
In summary, while both fiscal year and calendar year are used for financial reporting, there are distinct differences between the two. Understanding these differences can help individuals and businesses make informed decisions about which reporting period to use.