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What is a Fiscal Year?
A fiscal year has more to do with accounting than the calendar. Also known as the "financial year" or the "budget year," it spans whatever 12-month period its creator happens to decide upon. The U.S. government, for example, observes it from 1 October through 30 September. In the United Kingdom, it goes from 6 April to 5 April of the following year.
If a business owner is trying to establish a fiscal year period for a new business, the type of enterprise has to be of primary consideration. A hair salon or a auto repair shop, where work tends to be steady and not seasonable, would do just as well to use the regular calendar year, which corresponds with the federal tax year. A retail operation that expects to reach peak traffic at Christmas time, however, would not want to have the end of this calendar — with the resulting scramble to accumulate tax information and prepare a budget for the upcoming year — coincide with the Christmas rush.
The best time for a fiscal year to end is the point at which inventory and business activity are the lowest. A resort hotel chain in South Florida, for example, might set it in August, while a ski resort in Vermont might stop in June. Some tax experts advise ending it on a quarterly benchmark, such as 31 March, 30 June or 30 September. That's because many financial statements, such as payroll, are released quarterly.
The IRS will generally accept any 12-month period as a taxable interval, provided the company fills out an 1120 form stating what the parameters of its fiscal year will be. Once this date has been established, however, it can't be changed for IRS purposes during that calendar year. Since preparing a budget is perhaps the most important task for state and national legislative bodies, governments often use this time period to determine when those lawmakers will be in session.
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![The U.S. government ends each fiscal year on Sept. 30.]()
By: emiliezhangThe U.S. government ends each fiscal year on Sept. 30. -
![April 5 is the end of the fiscal year in the United Kingdom.]()
By: night_wandererApril 5 is the end of the fiscal year in the United Kingdom.
Discussion Comments
I guess the idea of different businesses having different fiscal years never occurred to me before, though it makes sense. Having mostly worked in things like retail and food service before now, my employers have always worked by a calendar-based financial fiscal year.
@watson42, I think that the end of the US Federal Budget fiscal year, like the United Kingdom's and probably many other national governments, is probably from an arbitrary decision that happened many years ago and no one has tried to change. And like much in government, I imagine that even if someone did elect to change it, there would be opposition, if only because people dislike change of that kind when it can be avoided.
It seems odd to me that the government fiscal year would end on 30 September, considering how close that is to the general elections every year. Especially in the case of a presidential election year, it seems like that would lead to even more scrambling and decision-making, to throwing around of the budget, and to confusion of accounting, as the current leader tries to rally to the end before he or she is either re-elected, defeated, or just leaves office without having run for re-election.
Although at the same time I suppose I can't think of a better time, except maybe whenever is the halfway point between spring primary elections and fall generals, maybe in the middle of the summer or so.
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