As we approach the year 2024, many businesses and organizations are already planning for their financial year. One of the most important decisions that need to be made is whether to follow a fiscal year or a calendar year. In this article, we will discuss the differences between the two and help you decide which one is best for your organization.

What is a Fiscal Year?

A fiscal year is a twelve-month period that a company or organization uses for financial reporting purposes. Unlike a calendar year, a fiscal year can start and end at any point in the year. For example, a company may choose to have its fiscal year start on July 1st and end on June 30th of the following year.

Why Do Companies Use a Fiscal Year?

There are several reasons why companies and organizations choose to use a fiscal year. One of the main reasons is that it may align better with their business cycle. For instance, a company that experiences a surge in sales during the summer months may choose to have its fiscal year start on July 1st to align with its business cycle. Another reason is that it may provide tax benefits by allowing a company to shift income and expenses to different tax years.

What is a Calendar Year?

A calendar year is a twelve-month period that starts on January 1st and ends on December 31st. It is the most commonly used year for financial reporting purposes, especially for personal income tax returns.

Why Do Companies Use a Calendar Year?

Many companies and organizations use a calendar year simply because it is the default option. It is also the easiest option for companies that do not have a specific business cycle that they need to align with. Additionally, using a calendar year can make it easier to compare financial information with other companies that also use a calendar year.

Question and Answer

Q: Can a company change its fiscal year?

A: Yes, a company can change its fiscal year, but it must follow the proper procedures and get approval from the Internal Revenue Service (IRS) if it wants to change its tax year.

Q: Which year is better for tax purposes?

A: There is no clear answer to this question as it depends on the specific circumstances of the company or organization. However, it is important to consult with a tax professional to determine which option is best for your organization.

Conclusion

Both fiscal years and calendar years have their advantages and disadvantages. It is important to carefully consider the specific needs of your organization before making a decision. By understanding the differences between the two and consulting with a tax professional, you can make an informed decision that will benefit your organization in the long run.