If you are going to build a successful business, you need to have an appreciation and understanding of business cycles. If you are going to build a successful financial management system for you business, you need to have a clear understanding of the beginning and end of these cycles, namely that of your business reporting.
While most businesses match their business reporting to the calendar year ending on December 31st, it might be beneficial to consider an alternative ending for your reporting cycle.
If your business cycle doesn’t line up with the calendar year, you may want to report your taxable income on a fiscal year basis that better matches the ebb and flow of your income and expenses. For example, if yours is a seasonal business that thrives during the summer months but is quiet for the remainder of the year, reporting on a fiscal year basis should probably be considered.
When utilized properly, individualized fiscal year reporting provides a better measure of performance over a company’s natural business cycle.
There are a few things to consider when it comes to determining your business reporting cycle:
- Once you file taxes using a calendar or fiscal year, you are virtually locked into it
- Sole proprietorships must use the same tax year for both the individual and the entity (usually calendar year)
- Most S corporations and service corporations must keep to the calendar year
- Partnerships must use the same tax year as the majority of owners (again usually calendar year)
- C corporations offer the most flexibility
Ultimately, as long as you’re not a sole proprietorship, If you can show a business reason for your unique business reporting cycles, the IRS can make an exception…understand your business cycles and choose accordingly.
[schema type=”person” name=”Matt Lescault” orgname=”Lescault and Walderman” phone=”866-496-2042″ ]