Texas Legal Entities
Tax Years
The tax year is used when calculating your taxable income in order to file an income tax return. A tax year is simply an accounting period in which income and expenses are documented. There are two types of tax years: a calendar year and a fiscal year. A calendar tax year commences in January and finishes in December. A fiscal year includes any 12 months that does not end on December 31st.
Generally, you adopt a tax year when filing your first income tax return. However, occasionally a specific type of year will be required under Income Tax Regulations and the Internal Revenue Code. Filing an application for the extension of time to submit an income tax return or employer identification number does not qualify as adopting a tax year. An income tax return is the only document that will dictate an adoption.
If you file a tax return according the calendar tax year and at a later point become a sole proprietor, partner, or a shareholder, you must file according to the calendar year. The only exception can occur with approval from the Internal Revenue Service.
If you do not keep record or have an accounting period, you must utilize the calendar year. In addition, if your current tax year does not qualify as a fiscal year you must adopt the calendar year. However, most companies are free to choose which year they would like to use.
If you would like more information on tax years, please contact Texas Legal Entities today by calling 512-472-2431.
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