A fiscal year (FY) is a 12-month accounting period that organizations use for financial reporting, budgeting, and tax purposes. Unlike a calendar year, which always starts on January 1 and ends on December 31, a fiscal year can begin and end in any month, depending on what best aligns with the organization’s business operations.
Purpose and Use of a Fiscal Year
A fiscal year allows organizations to customize their financial reporting to better reflect their natural operating cycles. Instead of adhering to the calendar year, which may not align with business activity peaks, companies and institutions can adopt a fiscal year that better captures their revenue and expense patterns.
For example, a retail company may end its fiscal year on January 31 to include the full holiday shopping season. An educational institution might use a fiscal year from July 1 to June 30 to match the academic calendar. This flexibility helps present a more accurate view of financial performance during key periods of business activity.
Nonprofits and grant-funded organizations also use fiscal years that align with grant cycles or major fundraising timelines, helping them plan budgets and allocate resources more effectively.
How Fiscal Years Are Named
Fiscal years are named according to the year in which they end. If a company’s fiscal year starts on February 1, 2025, and ends on January 31, 2026, it would be referred to as Fiscal Year 2026 (FY2026 or FY26). This naming convention helps standardize communication across stakeholders.
Examples of Fiscal Years
Different types of organizations adopt fiscal years that serve their operational or industry-specific needs:
- U.S. Federal Government: October 1 to September 30
- Apple Inc.: Ends late September
- Walmart Inc.: Ends January 31
- Microsoft Corporation: July 1 to June 30
- Universities and Colleges: Often July 1 to June 30
- Nonprofits: Varies based on grant cycles or events
Fiscal Year vs. Calendar Year
| Criteria | Calendar Year | Fiscal Year |
| Start Date | January 1 | Any chosen month |
| End Date | December 31 | 12 months later (flexible) |
| Common Use | Individuals, small firms | Larger orgs, nonprofits, govt |
| Simplicity | Straightforward | Requires administrative planning |
| Customization | None | Aligns with business cycles |
Using a fiscal year can help companies avoid ending their year during peak operational months or periods of volatility, leading to smoother financial planning.
IRS Rules and Filing Deadlines
Businesses using a fiscal year must file tax returns under IRS rules:
- C Corporations: Must file by the 15th day of the third month after the fiscal year ends
- S Corporations and Partnerships: Must file by the 15th day of the third month as well
- Individuals: Required to use a calendar year for tax purposes
- Personal Service Corporations (PSCs): Generally required to follow the calendar year unless a legitimate business purpose is demonstrated
Eligible businesses can adopt a fiscal year for tax reporting by filing their first tax return using that fiscal period. However, they must file Form 1128 with the IRS to change a fiscal year and obtain approval.
Tax Planning Opportunities
- Income Deferral: A company that completes most of its contracts in summer might use a March 31 fiscal year-end to push income recognition into the following tax year.
- Expense Timing: Businesses can plan major purchases or deductions based on their fiscal calendar.
- Tax-Loss Harvesting: Aligning fiscal years with cyclical losses (like inventory write-offs) can help offset income more effectively.
Transitioning from Calendar to Fiscal Year
Changing a company’s fiscal year requires more than just a calendar switch. It involves:
- Filing Form 1128 with the IRS for approval
- Adjusting internal systems and accounting cycles
- Communicating changes to stakeholders, especially shareholders or creditors
- Managing a short tax year during the transition, which has unique reporting requirements
Organizations should evaluate whether a change would complicate financial comparisons, tax reporting, or system compatibility.
Advantages of a Fiscal Year
Alignment with Business Cycles: Companies in industries with seasonal peaks benefit from aligning their fiscal year with their busiest months. For example, ending the year after the holiday season allows retailers to report complete results from their highest-revenue period.
Improved Tax Planning: A fiscal year offers timing flexibility for revenue recognition and expense management. Businesses can defer income or accelerate deductions depending on when their fiscal year ends.
Operational Clarity: Managers can evaluate performance across complete business cycles instead of splitting peak periods across two calendar years. This helps in budgeting, forecasting, and strategic planning.
Administrative Convenience: A fiscal year can ease reporting burdens for organizations with complex operations by avoiding year-end closings during busy periods or major events.
Limitations of a Fiscal Year
- More Complex Setup: Requires additional planning and IRS compliance
- Comparability Issues: Harder to benchmark against firms using calendar years
- IRS Restrictions: Not all entities are allowed to adopt or change fiscal years freely
- Administrative Burden: Requires careful coordination across accounting, finance, tax, and IT functions
Fiscal years are especially important in sectors with seasonality, cyclical operations, or academic and government funding schedules. Many publicly traded companies disclose their fiscal year in their annual Form 10-K filings with the Securities and Exchange Commission (SEC), giving investors a standard reference point for evaluating performance.
