If you’re a small business owner or sole proprietor, you may be used to filing your business taxes according to the calendar year and thinking nothing of it. But if your business in Concord, NC grows to the point where you incorporate or create a limited liability company, you should pick a fiscal year for paying business taxes. It can be beneficial for your operation and give you more financial flexibility to pay taxes than the calendar year. But there are benefits to using the calendar year for filing as well. Here are other simple steps to ease the pain during tax season.
Calendar Year Versus Fiscal Year
A calendar year begins on January 1 and ends on December 31. If you’re a sole proprietor, the IRS requires you to follow the calendar year for paying taxes. That means you have until April 15 of the following year to pay your taxes for the previous year. The IRS will allow an exception to the rule in the event that the reason for the request is compelling. Otherwise, the sole proprietorship has to file using the calendar year.
The fiscal year is a date picked by a corporation for the purpose of “closing their books”. A common fiscal year is one that ends on June 30 and begins on July 1, but a business is free to pick dates that are compatible with their operation. Some businesses have peak seasons and may prefer a fiscal year with an end that coincides with the finish of the season. This allows them to pay their corporate income taxes as they’re getting ready to close for the year and avoid the need to find money when there’s no business. A business can file their taxes and pay them anytime between the end of the fiscal year and the due date.
The Importance of Due Dates
You’re most likely familiar with the fact that taxes for the calendar year are due on April 15th of every year. That means taxpayers have 18 weeks to generate and file their taxes. Corporations get a similar grace period, but the exact amount of time varies. Partnerships and S corporations have to file by the 15th day of the third month after the end of their fiscal tax year. All other corporations have four months and 15 days to file after the end of their fiscal year. It’s important to track the fiscal year and due dates for taxes in order to stay out of trouble with the IRS. You can always enlist the help of a Charlotte NC business accountant to take the burden of tracking dates off your shoulders and get your taxes paid on time.
Changing the Fiscal Year
Sometimes it happens that the fiscal year you picked doesn’t work out due to a change in circumstances or income. The IRS allows the corporate entity to change its fiscal year through a process known as a short tax year. The business closes out its year on the end of the new fiscal tax year and submits a short year tax form. For example: the current fiscal year is July 1 to June 30 and the corporation wants to change it to May 1 to April 30. The corporation has to file the short tax year by April 30 in order to make the new date effective and note to the IRS that there is a change in the accounting period. The change requires filing an additional form to make the change official with the IRS. This needs to be done four months and 15 days after the end of the new fiscal year. The IRS usually accepts the change in a fiscal year without comment, but there’s always a chance it questions your decision. You can avoid this by retaining the assistance of a Charlotte NC business accountant who understands how these changes are made and can keep you out of trouble with the IRS.