The Definition of Fiscal Year: How to Determine a Fiscal Year

The definition of fiscal year (abbreviated FY) is a company’s annual accounting period over a span of 12 consecutive months. In the US, a company’s fiscal year reflects a given accounting period for financial statements and federal tax payments, but it does not necessarily start on the first day of the calendar year. A company’s fiscal year always aligns with the end date of a given 12-month period. For example, a fiscal year from May 1 2020 to April 30 2021 would be FY 2021. Fiscal years also always end on the last day of the month, unless it is December (in which case it would simply be a calendar year). Eligible businesses in different industries may align their tax years with the seasonality of their businesses. For instance, many retail businesses begin their fiscal year on February 1st (with a year-end date of January 31st the following year) to account for holiday shopping traffic. Certain types of businesses—like sole proprietorships, [S corporations](https://www.masterclass.com/articles/s-corporation-guide), or personal service corporations—must coordinate their fiscal year with the calendar year, unless they file to change their tax year with Internal Revenue Service (IRS) form 1128. A fiscal year covers a company’s annual [accounting](https://www.masterclass.com/articles/what-is-gaap) period, while a tax year refers to the 12-month period covering a business or individual’s tax return. The tax year dictates the timeline that a person or business uses to submit their income tax to see how much they will owe to (or are owed by) the government. A fiscal year refers to the specific annual bookkeeping period that a company follows, which is used to inform annual reports for a company’s financials. The IRS’ standard tax year covers the time between January 1st and December 31st of a given year, with tax returns due on the fifteenth of the fourth month following the tax year’s end. A company can align its tax filing with its fiscal year, depending on the person or business filing. From multimillion-dollar businesses to non-profit organizations, fiscal years are commonplace for financial accounting. Here are three common examples of a fiscal year that does not align with the calendar year. 1. __The US government__: The US federal government’s fiscal year begins October 1 of the earlier year and ends September 30 of the following year. 2. __Retailers__: A common fiscal year for retailers is February 1 to January 31. Many retailers see a rise in sales during the holidays, particularly at the end of the year. 3. __School districts__: For many school systems, a fiscal year starts July 1 and ends June 30, around when school is usually let out for summer. A company’s fiscal year is important for business because it determines the timeline over which a company analyzes its financial documents. This process helps with budgeting, calculating expenses, cash flow, or tax filing. A business’ annual reports over a fiscal year can help its officials analyze a business’ financial strengths and weaknesses. A company’s fiscal year is also important because it may coincide with the correct time to file a business’s tax returns with the IRS. Many companies use different fiscal years for their financial reporting. Here are a few guidelines on how to determine your company’s fiscal year. 1. __Look at your company’s busiest seasons__. Some seasonal businesses, like tourism, are more popular during certain times of the year. If you do more business during a specific period of time (like retailers during holiday seasons) you may choose your fiscal year-end to occur right after the highest activity to have a full idea of your business’s financial performance. 2. __Speak to your accountant__. Changing your company’s fiscal year may be complicated, so you want to make sure that you speak to your accountant before you attempt to do so. They will be able to help you determine if you are eligible because there are some barriers to entry. For instance, if your company doesn’t keep financial records, you are required to use the standard calendar year as your fiscal year. 3. __File IRS form 1128__. If your business is eligible to change its fiscal year to anything other than the calendar year, you must file IRS form 1128 to declare your new fiscal year. Your request to change your fiscal year is subject to IRS approval. Get the [MasterClass Annual Membership](https://www.masterclass.com) for exclusive access to video lessons taught by business luminaries, including Howard Schultz, Chris Voss, Robin Roberts, Sara Blakely, Daniel Pink, Bob Iger, Anna Wintour, and more. The fiscal year covers a 12-month period over which a business does its accounting, which may or may not align with the tax year. Companies use fiscal years for their budget process, for tax filing, and for other accounting purposes. Read on to learn more about how companies determine their fiscal years.