Fiscal Year or Calendar Year for a US Business: Who Can Choose

When does the fiscal year end, and how do I find out my business's financial year-end?

A calendar year ends December 31. A fiscal year is 12 months ending on the last day of any other month, or a 52-53-week year (IRS: Tax years). Which one a business may use depends on how it is taxed: a sole proprietor or single-member LLC follows its owner, a partnership or S corporation needs a required or permitted year, and only a C corporation generally picks its own. A business's year-end is the one its returns use, so start with the last return filed.

An EIN application does not set the year. Neither does an extension request or an estimated tax payment. Unless a required year applies, as covered below, a business adopts a year by filing its first return on it (Publication 538). If line 12 of the SS-4 and the filed returns disagree, the filed returns show the year in use, not whether it was a permitted one. A taxpayer that adopted an improper tax year must change to a proper one (Publication 538).

A case is not simple when a business wants a non-calendar year (only some entity types may choose one, and the options can carry a yearly payment or a user fee), when a partnership or S corporation is already on one, when the year on file was never approved, or when the books run on a different cycle than the returns. Gather the last two returns, the EIN confirmation, the S election acceptance and Form 2553, and any Form 8716, Form 8752 or IRS approval of a Form 1128.

Can my business use a fiscal year, or must it use the calendar year?

The entity's federal tax classification decides. Generally, anyone may adopt the calendar year. A fiscal year is allowed only when the books are kept on that basis, and the calendar year is required for a business with no books, no annual accounting period, or a year that does not qualify as a fiscal year (Publication 538).

An LLC's tax year follows how it is taxed. A domestic LLC with one member is disregarded as separate from its owner and follows the owner's year. One with two or more members is a partnership and follows the partnership rules. Either kind that files Form 8832 to be taxed as a corporation, or Form 2553 for S status, follows the corporate rules instead (IRS: LLC; Instructions for Form 2553). For how partnerships and LLCs are taxed, see how partnerships are taxed.

This page covers the federal tax year. State rules are not covered.

What year does a sole proprietor or single-member LLC use?

A sole proprietor or single-member LLC uses its owner's tax year, which for an individual is usually the calendar year. The business reports on the owner's return, so it has no year of its own. A single-member LLC owned by a corporation or partnership follows that owner's year, which may be a fiscal year.

Generally, an individual must adopt the calendar year, and may adopt a fiscal year only by keeping books and records on that fiscal year (Publication 538). A person who files a first return on the calendar year and later starts a business as a sole proprietor must keep the calendar year unless the IRS approves a change or an exception applies.

For Form 5472 reporting, a wholly foreign-owned single-member LLC uses the same tax year as its owner for US filing or, if the owner has none, the calendar year (Instructions for Form 5472).

The year covers all of the owner's income, not only the business's.

For an individual, the automatic route on Form 1128 runs only toward the calendar year. A move to a fiscal year goes through a ruling request with a user fee (Instructions for Form 1128).

Which year must a partnership or multi-member LLC use?

A partnership, including a multi-member LLC taxed as one, generally takes its partners' year. It must conform to its partners' years in this order (Publication 538; 26 U.S.C. 706):

1. The year shared by partners who together hold more than 50% of profits and capital.
2. If there is no such year, the year of all its principal partners. A principal partner holds 5% or more of profits or capital.
3. If neither applies, the year that gives the least aggregate deferral of income to the partners.

A partnership whose majority-interest partners use the calendar year, as individuals generally do, is therefore generally required to use it too. A two-member LLC owned by two individuals is the usual example.

A partnership may use another year only by a section 444 election, a 52-53-week year ending with reference to its required year or section 444 year, or an approved business purpose. Deferring income to the partners is not itself a business purpose (26 U.S.C. 706(b)).

If the partners' years change, the required year can change with them. The partnership then files a short-period return and can get automatic approval on Form 1128.

Which year must an S corporation use?

An S corporation must use a permitted year. The calendar year always qualifies. The others are a section 444 year (covered below), a 52-53-week year ending with reference to the calendar year or a section 444 year, or a year for which the corporation establishes a business purpose (Publication 538; 26 U.S.C. 1378). Deferring income to shareholders is not a business purpose by itself.

A corporation electing S status requests a non-calendar year in Part II of Form 2553; an S corporation that already exists generally changes its year on Form 1128 (Publication 538; Instructions for Form 2553). The Part II routes:

• Natural business year: the last two months of the year bring in at least 25% of the 12 months' gross receipts, in each of three years, and no other year-end scores higher (Instructions for Form 1128). Automatic approval needs 47 months of gross receipts, counting a predecessor's if the business carries on the predecessor's business. A corporation without that history can still ask for a business-purpose ruling under another natural-business-year test (Form 2553, box Q1, user fee), but approval is not automatic.
• Ownership tax year: the fiscal year used by shareholders who hold more than 50% of the stock (Instructions for Form 1128).
• Any other business purpose: a ruling request that carries a user fee.

A C corporation on a fiscal year that elects S status must use a permitted year as an S corporation. For the election itself, see whether to elect S corporation status and how S corporations are taxed.

What is the section 444 election, and what does it cost every year?

A section 444 election lets a partnership, S corporation or personal service corporation use a year other than its required year, if the new year ends no more than 3 months before the required year ends (26 U.S.C. 444). It is made on Form 8716. An entity that owns, or is owned by, another partnership, S corporation, personal service corporation or non-grantor trust is in a tiered structure and generally cannot make or keep the election. Structures of partnerships and S corporations all on the same year, and small ownership interests, are excepted (26 CFR 1.444-2T).

That gap is the deferral period: the months between the last day of the elected year and the last day of the required year (Form 8716). For a new S corporation, whose required year ends December 31:

A partnership or S corporation that already files on its required year, usually the calendar year, has a deferral period of zero and cannot move to a section 444 year later. Its routes are a natural business year or, for an S corporation, an ownership tax year (Form 1128, Part II, automatic approval when it qualifies), or a business-purpose ruling request with a user fee. Any existing entity that changes its year also cannot elect a year with a longer deferral period than the year it is leaving.

Every year the election is in effect, a partnership or S corporation:

• Files Form 8752, even when nothing is due (Publication 538).
• Pays with the form when the required payment for the year, or for any earlier year, is over $500. Form 8752 and the payment are due May 15 of the calendar year after the one in which the election year begins.
• Owes a penalty of 10% of the underpayment if it pays late, unless it shows reasonable cause (Instructions for Form 8752).

The payment reflects the value of the deferral. Form 8752 takes the base year's net income, scaled to the deferral months, adds an amount when payments to owners (such as wages and rent) were lower in the deferral months than the year's average, and applies the top individual rate in effect at the end of the base year plus 1 percentage point. It then credits earlier required payments, net of refunds (26 U.S.C. 7519). A new entity has no base year, so its first-year payment is zero. A requirement below the credit produces a refund while the election continues, and the remaining balance is refunded when the election ends or the entity liquidates. Refunds carry no interest.

A personal service corporation files no Form 8752. It attaches Schedule H (Form 1120), which limits deductions for payments to employee-owners (Form 8716).

File Form 8716 by the earlier of two dates (Form 8716):

• The 15th day of the 5th month after the month that includes the first day of the elected year.
• The due date, without extensions, of that year's return.

For a business that starts mid-month, a short first year can make the second date the earlier one (26 CFR 1.444-3T).

A late Form 8716 is automatically allowed a 12-month extension if "Filed Pursuant To Section 301.9100-2" is printed at the top and the form is filed within 12 months of the original due date. Attach a copy to the return for the first elected year.

A corporation electing S status states its intent on Form 2553, Part II. Box R1 says it will make a section 444 election if qualified. Box R2 agrees to a December 31 year if it turns out not to qualify; without that agreement, the S election may not take effect (Form 2553; 26 CFR 1.444-3T).

The election lasts until it ends. It ends when the entity moves to its required year or another permitted year, liquidates, or willfully fails to make the required payments, and in other cases, such as joining a tiered structure that gets no exception, or an S corporation losing S status without immediately becoming a personal service corporation. A personal service corporation that elects S status may continue its election (26 CFR 1.444-1T(a)(5)). After it ends, the entity can never elect again (26 U.S.C. 444; Instructions for Form 8752).

Can a C corporation pick any year-end?

Generally yes, unless it is a personal service corporation. A new C corporation establishes its year when it files its first return, and may use the calendar year or a fiscal year if its books are kept on that basis (Publication 538). Its first year begins on the earliest date it has shareholders, has assets or begins doing business (Instructions for Form 1128). It files no Form 1128 for that first year (Instructions for Form 1128). A corporation that was inactive for years and is reactivated is treated as a new taxpayer for this purpose.

A personal service corporation is the exception. Its principal activity is personal services, meaning work in fields such as accounting, actuarial science, architecture, consulting, engineering, health, law and the performing arts. Employee-owners substantially perform those services and together own more than 10% of its stock by value (Publication 542; 26 U.S.C. 441(i)). It must use the calendar year unless it makes a section 444 election, adopts a 52-53-week year based on the calendar year or a section 444 year, or establishes a business purpose.

For how a C corporation is taxed, see how C corporations are taxed.

What is a 52-53 week year?

A fiscal year that always ends on the same day of the week, so it runs 52 or 53 weeks. It ends on whatever date that weekday last occurs in a calendar month, or on the date it falls nearest the month's last day. The books must be kept on that basis (Publication 538).

Elect it by attaching a statement to the return that gives the month, the weekday and the date. For a partnership, S corporation or personal service corporation, the year must end with reference to its required year or its section 444 year. A newly formed one can adopt it without approval. Changing to or from a 52-53-week year needs Form 1128.

How do I change my tax year, and what is a short tax year?

A business changes its tax year, generally, by filing Form 1128 to request IRS approval (IRS: Tax years). Automatic approval carries no fee; a ruling request carries a user fee. Some cases skip Form 1128.

A ruling request costs $5,750. The reduced $3,450 fee needs a certification and gross income under $400,000, figured under Appendix A of Rev. Proc. 2026-1: an individual combines income with a spouse, a partnership or S corporation with an owner holding half or more, and a new entity with no full-year return uses its owners' combined income (Rev. Proc. 2026-1, Appendix A). Automatic approval is not available to a corporation that changed its year in the last 48 months or holds an interest in a pass-through entity, with exceptions. For a partnership, S corporation or personal service corporation, the 48-month bar applies only to a natural business year request, and a change to its required or ownership year does not count as a prior change (Rev. Proc. 2006-46, section 4.02(5)). It also loses automatic approval while its year is under examination or before Appeals or a court, unless the extra steps in the instructions are followed (Instructions for Form 1128).

When to file:

• Automatic approval: file Form 1128 with the IRS service center where the return is filed (Attention: Entity Control) by the due date, including extensions, of the return for the short period. Attach a copy to that return.
• Ruling request: by the due date, without extensions, of the return for the short period.
• Too early: an application filed before the short period ends generally will not be considered.
• Late: a late application is an extension request under section 301.9100-3, a ruling request with its own user fee. Within 90 days of the due date it may be treated as timely if the filer acted reasonably and in good faith and relief would not prejudice the government's interests; after that, only in unusual and compelling circumstances.

A short tax year is a year of less than 12 months. A return is required for it when the entity was not in existence for a full year or changes its year (Publication 538). For a change, the short period starts the day after the old year closes and ends the day before the new year begins.

For an individual, C corporation or personal service corporation changing its year, income tax for the short period is figured by scaling its income up to a full year, finding the tax on that, and scaling the tax back to the months in the short period (26 U.S.C. 443). A partnership or S corporation does not annualize (26 CFR 1.706-1(b)(8); 1.1378-1(c)). Self-employment tax uses the actual self-employment income of the short period.

Does my bookkeeping year have to match my tax year?

For the return, yes. The tax code defines a tax year as the annual period on which a taxpayer regularly figures income in keeping the books (26 U.S.C. 441). A fiscal year works only when the books are kept on that basis, and a business with no books or no annual accounting period uses the calendar year (Publication 538).

So the year-end set in the accounting file and the period the books are closed on should match the year on the last filed return. If a business files on a fiscal year but keeps its books on another cycle, the year on file may not qualify, and that needs sorting out before the next return. The steps to close the books on the tax year-end are in the year-end close checklist.

Payroll does not move with the tax year: Form W-2 entries are based on wages paid during the calendar year (General Instructions for Forms W-2 and W-3). See accrued payroll at year-end.

Cash or accrual is a separate choice from the year. See cash or accrual for a small business.

Example

Dollar figures are US dollars and illustrative.

Books close June 30, the return uses the calendar year

A two-owner LLC taxed as a partnership has had a June 30 year-end in its accounting file since the bookkeeper set it up. Every return so far was filed on the calendar year. The books and the returns cover different periods, so each return needs a bridge from two fiscal years of books. Which year the LLC may use, and whether anything must be corrected, depends on its filing history.

An S corporation that wants a September 30 year-end

A new S corporation rents ski gear and wants a September 30 year-end. Its required year is the calendar year, so the deferral period is 3 months, which section 444 allows. It lacks the 47 months of receipts needed for automatic natural-business-year approval, and this example assumes it elects section 444 rather than asking for a ruling. For a year that starts October 1:

• Form 8716 is due by March 15, the 15th day of the 5th month after October. The corporation states its intent on Form 2553.
• Year 1: Form 8752 is due the following May 15, months before the year ends. It shows zero, because a new entity has no base year.
• Year 2: the required payment works out to $300. That is not over the threshold, so no payment is due, but Form 8752 is still filed showing zero.
• Year 3: the required payment works out to $900. That is over the threshold, so $900 is due with the form on May 15.

A new C corporation that moves its year

A C corporation that first has shareholders, assets and business on March 1 chooses a June 30 year-end. Its first return covers March 1 to June 30, a short year of 4 months, with no Form 1128. The next return covers July 1 to June 30.

Later it wants a December 31 year-end. That is a tax year change on Form 1128, with automatic approval if it qualifies (it is not a personal service corporation and holds no pass-through interest). The corporation files a short return for July 1 to December 31, 6 months, with income tax figured on a scaled-up year. Calendar years follow, and its books now close December 31.

Different for you?

• A seasonal business, an S corporation or a partnership wants a non-calendar year, or the year on file does not match how the books are kept: whether a section 444 election, a business-purpose request or Form 1128 applies, what it costs, and how the short return and the books line up all depend on the entity's facts. Get corporate tax help.
• You are a sole proprietor or single-member LLC owner and want a non-calendar year: the year is your personal return's year, and the move is a ruling request with a user fee, not an automatic change. Get individual tax help.
• A return was filed on the wrong year, a Form 8752 was missed, or an IRS notice mentions the tax year: whether the year was ever a permitted one, and what penalty or correction follows, depends on the filing history. See late filing and payment penalties and catching up on unfiled business returns. Get corporate tax help.
• A single-member LLC is wholly foreign-owned: for Form 5472 reporting it uses the owner's US filing year or, if the owner has none, the calendar year; see foreign-owned single-member LLC filing. A foreign-owned LLC with two members or a corporate election follows the partnership or corporate rules above. Get cross-border tax help.
• The books are behind, or kept on a different cycle than the return: see catching up on overdue books and get bookkeeping help.
• You are choosing an entity type or changing it: see whether to elect S corporation status and changing your business structure.
• This is the first return of a new business: see your first business tax return.
• Your corporation is Canadian: see choosing or changing a year-end.