Choose a reporting year that best reflects the operating cycle of your company for tax purposes.
When the time comes to open business, it is up to you to choose the 12 month period to report on your company tax return. This isn’t a business improvement idea, but rather a requirement of the IRS. Unlike a W2 wage earner, your company should and must adopt a tax year. If you are filing the first return for your business, the IRS will allow you to choose either a calendar or a fiscal year.
A calendar tax year is 12 consecutive months starting on January 1 and ending on December 31. It is inflexible, and if it starts or ends on any other day, it is not a calendar year. There are rare circumstances when you would be able to change to fiscal year reporting. Typically, even if you change the form of business under which you operate, you must still file a calendar year return. The IRS will, however, grant you the right to change to a fiscal year. But you must have good reasoning to gain their approval.
When you start a new business you have an opportunity to adopt either a calendar or a fiscal year. But, in future years, you almost always need IRS approval to make a change. A fiscal year, on the other hand, is any 12 month period that ends on the last day of any month except December. Fiscal years are generally adopted when you file your first tax return. You would keep that same fiscal year until such time as you receive IRS approval to make a change. You should review IRS publication 538 for specific information on reporting years.