Choosing a Tax Year: Calendar Year vs. Fiscal Year for Small Businesses

By Yarik Yarosh, CPA ·September 5, 2026 ·6 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

The tax year determines the 12-month period for which a business reports income and expenses. Most small businesses use a calendar year (January 1 through December 31) because of IRS requirements for pass-through entities. Sole proprietorships MUST use a calendar year (the business year matches the owner’s individual year). S-Corps and partnerships are generally required to use a calendar year under IRC 1378 (S-Corps) and IRC 706(b) (partnerships), unless they qualify for a fiscal year-end under the IRC 444 election (limited to September 30, October 31, or November 30 year-ends). C-Corps are the only entity type with free choice of any fiscal year-end.

✓Key takeaway

Tax year rules by entity type:

Entity	Default Tax Year	Can Choose Fiscal Year?
Sole proprietorship	Calendar year (Dec 31)	No (must match owner’s individual year)
Single-member LLC	Calendar year	No (disregarded, follows owner)
Partnership / multi-member LLC	Calendar year	Limited (IRC 444: Sept, Oct, or Nov year-end)
S-Corporation	Calendar year	Limited (IRC 444: Sept, Oct, or Nov year-end)
C-Corporation	Any year-end	Yes (any month-end)

IRC 444 election (for S-Corps and partnerships):

Feature	Details
Available year-ends	September 30, October 31, or November 30
Required payment	Deposit with IRS (IRC 7519) to approximate the tax deferral benefit
Form	Form 8716 (filed by the due date of the return for the first fiscal year)
Annual deposit	Calculated on Form 8752, due each year
Can be revoked	Yes, by changing back to calendar year (Form 1128)

Why fiscal year-end matters: A September 30 fiscal year-end for an S-Corp means:

Income earned October through September is reported on the S-Corp return (due December 15, or March 15 with extension)
The K-1 flows to the owner’s individual return for the calendar year that includes the fiscal year-end
A 3-month deferral of income: income earned in October through December of one year is not reported on the owner’s individual return until the FOLLOWING calendar year

When a fiscal year makes sense:

Situation	Benefit
Seasonal business with natural year-end (e.g., ski resort, Sept 30)	Financial statements match business cycle
C-Corp wanting to defer owner’s bonus	Accrue in fiscal year, pay within 2.5 months
Business with heavy Q4 activity	Fiscal year-end avoids the year-end crunch coinciding with busy season

How does the tax year choice affect a small business?

Hypothetical example

Round numbers. Two scenarios comparing calendar year vs. fiscal year for an S-Corp.

Scenario 1: Calendar year S-Corp (default, most common) Year-end: December 31 S-Corp return due: March 15 (or September 15 with extension) K-1 to owner: included on owner’s calendar-year individual return

Income timing:

Revenue earned January through December 2025: reported on 2025 S-Corp return
K-1 for 2025: flows to owner’s 2025 individual return (due April 15, 2026)
No deferral (S-Corp year and owner’s year are the same)

Scenario 2: Fiscal year S-Corp (September 30 year-end, IRC 444 election) Year-end: September 30 S-Corp return due: December 15 (or June 15 with extension) K-1 to owner: included on owner’s calendar-year return for the year the fiscal year ends

Income timing:

Revenue earned October 1, 2024 through September 30, 2025: reported on the S-Corp’s fiscal 2025 return
K-1: flows to owner’s 2025 individual return (the calendar year in which September 30, 2025 falls)
Deferral: income earned October through December 2025 is part of the S-Corp’s fiscal 2026 year, which ends September 30, 2026, and flows to the owner’s 2026 individual return

The deferral effect:

Period	Calendar Year S-Corp	Fiscal Year S-Corp (Sept 30)
Oct-Dec 2025 income	Taxed on 2025 individual return	Taxed on 2026 individual return
Deferral	0 months	3 months

On $30,000 of income earned October through December:

Calendar year: taxed April 15, 2026
Fiscal year: taxed April 15, 2027 (one year later)

Present value of deferral at 5% discount rate: $30,000 x 24% x 5% = $360 annual benefit. The IRC 7519 required deposit partially offsets this, but for growing businesses, the deferral can be meaningful.

The IRC 7519 required deposit: The S-Corp must deposit an amount with the IRS to approximate the tax benefit of the deferral. The deposit is calculated on Form 8752 and is:

Required deposit = (Deferral period months / 12) x (Net base year income x Highest individual tax rate)

For a $120,000 income S-Corp with a 3-month deferral: Deposit = (3/12) x ($120,000 x 37%) = $11,100

This deposit is refundable when the S-Corp changes back to a calendar year or terminates. It’s essentially an interest-free loan to the IRS that approximates the tax the owner would have paid without the deferral.

When the calendar year is clearly better (most small businesses):

The owner’s individual return and the business return have the same year-end, simplifying everything
No IRC 7519 deposit required
No Form 8716 or Form 8752 filing
Tax software, bookkeeping systems, and CPAs all default to calendar year
The deferral benefit is small relative to the administrative complexity

When a fiscal year might make sense:

C-Corp (no restrictions): a June 30 year-end spreads the tax compliance workload away from the January-April rush
Highly seasonal business: a ski resort with a September 30 year-end reports a complete season (October through March) in one fiscal year instead of splitting it across two calendar years
Large S-Corp with specific deferral planning: the IRC 444 election can be worthwhile when income is high and growing, making the 3-month deferral meaningful

Changing the tax year (Form 1128): An existing business changing its tax year must file Form 1128 and obtain IRS approval. The transition creates a “short tax year” (a return covering less than 12 months). This can create unusual tax results if income or deductions are front-loaded or back-loaded.

Illustrative numbers only, not a real client and not advice for your facts.

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Cite this page

Yarik Yarosh, CPA. "Choosing a Tax Year: Calendar Year vs. Fiscal Year for Small Businesses." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-choosing-tax-year-fiscal-vs-calendar

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.

Choosing a Tax Year: Calendar Year vs. Fiscal Year for Small Businesses

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