Choosing Your LLC Fiscal Year

Updated: 2/22/24

Choosing the right fiscal year is an essential aspect of running an LLC. It affects how your business is taxed, the timing of your tax payments, and your tax filing deadlines. If you’re not sure what a fiscal year is or how to choose the right one for your LLC, you’re in the right place. In this article, we’ll explain the difference between calendar and fiscal tax years and why your business’s fiscal year matters. We’ll also cover the tax years for different LLC types and provide you with tips for choosing the right fiscal year for your LLC. By the end of this article, you’ll have a better understanding of the fiscal year and how to choose the right one for your LLC.

Calendar Tax Year vs. Fiscal Tax Year

The IRS defines a fiscal tax year as a period of 12 consecutive months that ends on the last day of any month except December. A calendar tax year, on the other hand, is a period of 12 months that runs from January 1st to December 31st.

What is a calendar tax year?

A calendar tax year is a tax year that runs from January 1st to December 31st. It’s the most common type of tax year and is used by most individuals and businesses in the U.S. For LLCs, a calendar tax year is the default tax year unless the LLC elects a fiscal tax year.

What is a fiscal tax year?

A fiscal tax year is any 12-month period that ends on the last day of any month except December. For example, if your LLC’s fiscal year ends on September 30th, it would be considered a fiscal tax year. Fiscal tax years are often used by businesses whose busiest season occurs during a specific time of the year.

Why does your business fiscal year matter?

Your business fiscal year matters for tax purposes because it determines when you must file your tax returns, when you must pay taxes, and when tax credits or deductions apply. Choosing the right fiscal year for your LLC can help you minimize your tax liability and ensure that you comply with IRS income tax regulations.

Choosing the right fiscal year can have important implications for your business, particularly in terms of taxes. For example, if your business operates on a seasonal basis, you may want to choose an annual accounting period that aligns with your busiest season. This can help you manage your cash flow more effectively, as you will be able to better anticipate when your business will have its highest and lowest revenue streams.

Additionally, the fiscal year that you choose can also affect your business’s financial reporting. By aligning your fiscal year with your business’s natural operating cycle, you may be able to better analyze your financial performance and make more informed decisions about how to allocate resources and invest in growth opportunities.

Tax Years for Different LLC Types

Single-Member LLCs

Single-member LLCs are LLCs that have only one owner. For federal income tax purposes, the IRS treats single-member LLCs as disregarded entities, which means that the LLC’s income and expenses are reported on the owner’s personal tax return. Single-member LLCs are required to use a calendar tax year unless they elect a fiscal tax year.

Multi-Member LLCs

Multi-member LLCs are LLCs that have more than one owner. For tax purposes, multi-member LLCs are treated as partnerships, and the LLC’s income and expenses are reported on a partnership tax return. Multi-member LLCs are required to use a calendar tax year unless they elect a fiscal tax year.

LLCs Taxed as an S Corporation

LLCs can also elect to be taxed as an S corporation. For tax purposes, an S corporation is a pass-through entity, which means that the LLC’s income and expenses are passed through to the owners and reported on their personal tax returns. LLCs taxed as an S corporation must use a calendar tax year unless they can demonstrate a business purpose for using a fiscal tax year.

LLCs Taxed as a C Corporation

Finally, if you choose to have your LLC taxed as a C corporation, you have the most flexibility in terms of choosing your fiscal year. As with other business types, you can choose a fiscal year that’s based on the calendar year or on a fiscal year that ends on a date other than December 31st. If your LLC is taxed as a C corporation, it’s required to use the same fiscal year that it has adopted for tax purposes in all of its tax filings.

IRS Resources for Choosing an LLC’s Fiscal Year

To help ensure you have access to accurate and comprehensive information, the IRS offers several resources designed to guide LLC owners through the process of choosing their fiscal year. Below is a list of IRS resources that can provide further insight and assistance:

Publication 538 (Accounting Periods and Methods): This publication is a comprehensive resource that outlines the basic rules for setting an accounting period and details the procedures to change your accounting period. It’s an essential read for understanding the differences between calendar years and fiscal years and how these choices affect your tax obligations.

Form 1128 (Application To Adopt, Change, or Retain a Tax Year): For LLCs looking to change their accounting period or adopt a fiscal year different from the calendar year, Form 1128 provides the necessary means to request approval from the IRS.

Instructions for Form 1065 (U.S. Return of Partnership Income): Although primarily for partnerships, these instructions include valuable information for multi-member LLCs treated as partnerships by the IRS. It covers topics relevant to fiscal years and tax reporting requirements.

IRS Small Business and Self-Employed Tax Center: This online resource center offers a wealth of information for LLC owners, including guidance on tax obligations, filing requirements, and decisions related to fiscal years.

IRS Interactive Tax Assistant: For personalized guidance, the IRS Interactive Tax Assistant provides answers to tax law questions by taking you through a series of questions and providing you with responses based on your input.

The Tax Calendar for Businesses and Self-Employed: This IRS calendar is an invaluable tool for keeping track of tax filing and payment deadlines, which may vary depending on your LLC’s fiscal year.

Utilizing these IRS resources can help demystify the process of choosing your LLC’s fiscal year, ensuring that you make an informed decision that best suits your business needs. However, given the complexity of tax laws and the potential implications of your choice, consulting with a tax professional or accountant is also highly recommended. They can provide tailored advice and help navigate the IRS’s requirements, helping ensure your LLC complies with tax laws while optimizing your fiscal decisions.

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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.