Fiscal Year Vs. Calendar Year
How Fiscal Years Work for Federal Budgets, Businesses, and Taxes
A fiscal year is a 12-month period that an organization uses to report its finances. It starts at the beginning of a quarter, such as January 1, April 1, July 1, or October 1. The organization can be a government, business, or nonprofit.
The finances represent the past year's revenue, costs, and profit margin. The managers compare the actual of each to what they budgeted to determine whether they have met their goals.
A fiscal year can coincide with the calendar year, which starts January 1. Most organizations must use this because it's also the tax year. The only exception is corporations.
Federal Government Fiscal Year
The most important fiscal year for the economy is the federal government's fiscal year. It defines the U.S. government's budget. It runs from October 1 of the budget's prior year through September 30 of the year being described. For example:
- FY 2020 is between October 1, 2019 and September 30, 2020.
- FY 2019 is the budget for October 1, 2018 through September 30, 2019.
- FY 2018 covers October 1, 2017 through September 30, 2018.
Why does the federal fiscal year begin on October 1? Because that allows newly elected officials to participate in the budget process for their first year in office. For example, President Donald Trump and the Congressional members elected in November 2016 took office in January 2017. The Trump administration proposed its FY 2018 budget on February 27, 2017.
You can find out how much the U.S. government spends versus what it earns annually by looking at its deficit by year.
The tax year is the fiscal year for all individuals and most businesses. It starts on the calendar year, January 1. Taxes aren't due until April 15, three and a half months later.
If you're wondering why April 15 is tax day, it's because Congress extended the deadline. It gives you more time to pay your taxes. It also gives the federal government more time to hold on to your money before issuing refunds.
Business Fiscal Year
Companies use the fiscal year to track revenue, costs, and profits.
Most businesses must use the same tax year as their owners. Single proprietors, partnerships, and S corporations use the calendar year. That goes for Limited Liability Companies that fall under those classifications for tax purposes.
C corporations file their tax returns separately from their owners. Their tax year coincides with their fiscal year. Their taxes are due three months later, on the 15th.
Many corporations find advantages for starting the fiscal year other than January 1. For example, some businesses might choose to start their fiscal year in April for tax purposes. They can shift income and expenses to a month outside of the fiscal year to improve their taxable income.
Businesses that are seasonal might start their fiscal year on July 1. A business that has most of its income in the fall and most of its expenses in the spring might start its fiscal year on October 1. That way, they know what their income will be for the year and can adjust their expenses to maintain their desired profit margins.
The Bottom Line
A fiscal year differs from a calendar year in that it begins at the start of a quarter such as April 1 or October 1. A calendar year always begins on January 1.
The federal government uses the fiscal year for their budgets. The budget’s fiscal year always starts on October 1 and ends on September 30 of the following year.
C corporations and those that rely on seasons, such as agricultural companies, are usually businesses that use the fiscal year.