What tax year do I use for my business?

A business owner in Maryland or any other state may choose a calendar tax year or a fiscal tax year. A tax year is selected based on when a company submits its first tax return, ask for an extension on a tax return or pays estimated taxes. Unless a company is subject to a required tax year, it is free to choose between a calendar or a fiscal year.

As its name implies, a calendar tax year begins on the first day of January and ends on Dec. 31. Fiscal tax years are 12 consecutive months that end on the last day of any month except January. Companies that keep no records, have no accounting period or do not have a tax year that qualifies as a fiscal year must use the calendar year.

Those who wish to change their tax year once it has already been adopted must file Form 1128 with the Internal Revenue Service, and a fee may apply if the request is not subject to automatic approval. If a business is in existence less than 12 months in a given year or changes its accounting period, it may have a short tax year. Tax returns of this nature tend to have the same requirements as full-year returns.

A business law attorney may be able to help business owners determine their tax liability and when those taxes must be paid as part of overall business tax planning. Failure to pay business taxes in a timely manner may lead to fines and penalties. This may be true even if the business owner made an honest mistake by failing to withhold or pay all taxes owed.

Source: SBA.gov, “Determine When the Tax Year Starts“, September 29, 2014

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