Short Tax Year Definition

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Short Tax Year Definition

What Is a Short Tax Year?

A fiscal or calendar tax year that is shorter than 12 months long is referred to as a short tax year. Individuals typically file on a calendar-year basis, therefore the short tax year mostly affects companies. It may happen if a company starts up in the middle of the year or changes its accounting cycle.

Understanding the Short Tax Year

Accounting is more than simply documenting spending and revenues for every firm. It is the procedure of reporting such costs and revenues to the Internal Revenue Service (IRS) in order to support the figures on the company’s tax filings.

Key Takeaways

  • When a firm initially starts or alters its accounting cycle, it may record a short tax year.
  • Individuals are frequently unconcerned with a short tax year.
  • Using IRS Form 1128, a company may modify its taxable year.

A company’s tax year for income reporting might be either the calendar year or the fiscal year. A calendar tax year is defined as the 12 months starting January 1 and concluding December 31. The fiscal year is any 12 consecutive months that finish on any day of the month except December 31st. A short tax year is one in which a company’s fiscal year is less than 12 months.

Accounting Changes

An annual accounting period excludes a short tax year, which happens when a firm exists for just part of a tax year or when a business changes its accounting period. If a firm launches at the middle of May and the owner wishes to file on a calendar-year basis, the business will have a short tax year, with revenue and expenditures recorded on Form 1040 for just 712 months.

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A similar problem would arise if the business owner desired to employ a fiscal year that started in a month other than the month in which the company was founded. Even if a firm began and subsequently went out of business within 12 months, its tax return for the short tax year must nevertheless disclose revenue and costs for the time it was in existence.

The criteria for submitting the return and calculating the tax are essentially the same as those for a full tax year ending on the final day of the short tax year.

The Taxable Year

A short tax year may also arise when a company changes its taxable year. This modification needs IRS approval and the submission of Form 1128. In this situation, the short tax period starts on the first day after the previous tax year finishes and ends on the day before the new tax year begins.

Assume a company that has always reported income from June to June chooses to alter its fiscal year to begin in October. For the changeover period, a short tax year from June to October must be declared.

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