Reporting Period (Tax Year)

What is a Reporting Period? 

A reporting period is a defined period or specific time frame used for financial reporting. It breaks down financial activities into designated time periods to help stakeholders assess financial progress and make informed decisions. It is especially essential for accounting, tax filing, and financial reporting.   

Without a defined reporting period, financial statements may lack accuracy and consistency, making it harder to assess a company’s financial health. A specific reporting period will provide a clear timeframe and make financial reporting easier.

When it comes to tax filing, the reporting period (Tax Year) refers to the 12-month period (either calendar or fiscal year) that covers a tax return. A tax year typically lasts 12 months or 52 to 53 weeks and is the period of activity that is considered when calculating tax and filing tax returns. It is required under the Internal Revenue Code and the Income Tax Regulations.   

Most taxpayers in the U.S. use a calendar year, i.e., the 12 months from January 1 through December 31. Some also use the fiscal year, which is a 12-month period that ends on the last day of any month except December.   

Types of Reporting Periods (Tax Year)  

Calendar Tax Year  

The calendar tax year is the most common reporting period. It follows the annual calendar and runs from January 1 to December 31.  This year-long period is simple since it aligns with the conventional calendar. It is commonly used by individual taxpayers.

Example: If you earned income from January 1, 2024, to December 31, 2024, you would report this income on your 2024 tax return, which is due by April 15, 2025.

Fiscal tax year  

A fiscal tax year refers to any 12-month period that ends on a day other than December 31. Businesses, mostly seasonal businesses, often use a fiscal year to better match their income and expenses.   

Example: A retail business that experiences peak sales during the holiday season might choose a fiscal year ending on January 31. This way, the entire holiday season’s revenue and expenses are included in one tax year that simplifies financial analysis and planning.

Short Tax Year 

A short tax year is a tax year that is less than 12 months. It is used when a new business starts in between a tax year.  It can also occur when a business decides to change its taxable year or accounting period, which requires the IRS’s approval using Form 1128. 

Example: If a company starts on August 1 and uses a calendar year, its first tax year will be from August 1 to December 31, resulting in a short tax year of five months.

State Tax Year 

Every single one of the states handle taxation independently of the federal system. With most of the states following the same system as the federal government where taxpayers need to file tax returns based on the calendar year and use April 15 as their required filing date.

Exceptions: While most states follow this system, there can be exceptions with different filing deadlines or fiscal years. It’s always important to check the specific requirements for your state to ensure compliance.