Fiscal Year

A fiscal year is a one-year period that businesses and governments use for financial reporting and budgeting. It’s the most common time frame for creating financial statements. While some fiscal years go from January 1 to December 31, many don't align with the calendar year. For example, universities often align their fiscal years with the academic year.

What is a fiscal year?

A fiscal year is a 12-month period used for accounting, but it doesn’t always start on January 1. Governments, companies, and organizations can choose different start and end dates based on their needs.

Understanding a company’s fiscal year is important for businesses and investors because it helps them accurately compare sales and earnings year-over-year. The IRS allows businesses to file taxes based on either the calendar year or a fiscal year.

See why startups prefer Inkle.

Example of a fiscal year

The U.S. federal government’s fiscal year runs from October 1 to September 30. Many charities have a fiscal year from July 1 to June 30, often starting with the beginning of grant awards. Fiscal years are named after their end date, such as “FY 2020” or “fiscal year ending June 30, 2020”.

Example 1: U.S. Federal government

Fiscal Year Period: October 1 to September 30
Naming: The fiscal year is named after the year it ends. For instance, "FY 2024" refers to the period from October 1, 2023 - September 30, 2024.
Budget and Planning: The federal budget is planned, proposed, and executed based on this fiscal year. Departments and agencies must align their financial planning and operations with this timeline.

Example 2: Nonprofit organization

Nonprofit: Hope for Tomorrow Charity
Fiscal Year Period: July 1 - June 30
Naming: The fiscal year is named after the year it ends. For instance, "FY 2023" refers to the period from July 1, 2022 - June 30, 2023.
Reason for Timing: This schedule often aligns with the start of new grant awards and funding cycles, making it easier for the nonprofit to manage grants and donations.

Example 3: Corporation

Corporation: Tech Innovators Inc.
Fiscal Year Period: January 1 - December 31
Naming: The fiscal year is named after the year it ends. For instance, "FY 2024" refers to the period from January 1, 2024 - December 31, 2024.
Alignment with Calendar Year: Many corporations choose to align their fiscal year with the calendar year for simplicity in financial reporting and tax purposes.

Why use a fiscal year?

A fiscal year can be helpful for seasonal businesses, giving a clearer picture of their activities and better aligning revenues and expenses. Retail companies, for example, often end their fiscal year on January 31st to include the holiday shopping season. Walmart and Target use this fiscal year.

IRS rules for fiscal years

Businesses using a fiscal year need to follow different deadlines for submitting forms and payments since the IRS usually follows a calendar year. These businesses must file by the 15th day of the 4 month after their fiscal year ends. For example, a company with a fiscal year from June 1 to May 31 must file its tax return by September 15.

In the U.S., businesses can adopt a fiscal year by filing their first income tax return within that fiscal year. They can switch to a calendar year anytime, but changing from a calendar year to a fiscal year requires special IRS approval or meeting specific criteria on Form 1128.

In short

A fiscal year is a 12-month period used by organisations for financial reporting. It forms the basis for financial reports, audits, and tax filings. Depending on their industry and revenue cycles, businesses might choose a fiscal year that doesn’t follow the calendar year for more accurate financial reporting.

Say hello to us on LinkedIn.