Annual accounting periods are 12-month periods which are used to compute taxable income, these periods are known as the taxable year.
Taxable year is measured for income tax purposes in one of two accounting periods:
1) Calendar Year – Most individuals and businesses use this method. It runs from Jan. 1 to Dec. 31.
2) Fiscal Year – Used by some businesses and organizations to better reflect a natural year for their line of business. This cycle is a 12-month period that ends on the last day of any month, except December. (i.e. Nov. 1 to Oct. 31)
- In partnerships, all partners must use the same taxable year
- S Corporations generally use calendar year
- Taxpayers generally use calendar year, but fiscal year may be used if adequate records are maintained,
- Once an accounting period is used, IRS consent must be obtained to change
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