What Is a Fiscal Year (FY)?
A fiscal year is a one year period that companies and governments use for financial reporting and budgeting. A fiscal year is most commonly used for accounting purposes to prepare financial statements. Although a fiscal year can start on January 1st and end on December 31st, not all fiscal years correspond with the calendar year. For example, universities often begin and end their fiscal years, according to the school year.
A fiscal year is important to publicly-traded corporations and their investors since it includes revenue, profit, and earnings making year-to-year comparisons possible. For tax purposes, the Internal Revenue Service (IRS) allows companies to be either calendar-year taxpayers or fiscal-year taxpayers.
- A fiscal year is a one year period chosen by a company to report its financial information.
- Financial reports, external audits, and federal tax filings are based on a company's fiscal year.
- Companies may choose to report their financial information on a non-calendar fiscal year based on the specific nature and revenue cycle of that business.
Understanding Fiscal Year (FY)
A fiscal year is a period of time lasting one year but not necessarily starting at the beginning of the calendar year. Countries, companies, and organizations can start and end their fiscal years differently, depending on their accounting and external audit practices.
The U.S. federal government runs on an Oct 1 to Sep 30 fiscal year. It is common for nonprofit organizations to observe a Jul 1 to Jun 30 fiscal year. Fiscal years that vary from a calendar year are typically chosen due to the specific nature of the business. For example, nonprofit organizations typically align their year with the timing of grant awards.
Fiscal years are referenced by their end date or end year. For example, to reference a nonprofit organization's fiscal year-end, you may say, "FY 2020" or "fiscal year ending Jun 30, 2020." Similarly, if you referred to government spending that occurred on Nov 15, 2019, you would label that as an expenditure for the fiscal year 2020.
According to the IRS, a fiscal year consists of 12 consecutive months ending on the last day of any month except December. Alternatively, instead of observing a 12-month fiscal year, U.S. taxpayers may observe a 52- to 53-week fiscal year. In this case, the fiscal year would end on the same day of the week each year, whichever happens to be closest to a certain date–such as the nearest Saturday to Dec 31. This system automatically results in some 52-week fiscal years and some 53-week fiscal years.
Fiscal years are commonly referred to when discussing budgets and are a convenient time period to reference and review a company's or government's financial performance.
IRS Requirements for Fiscal Years
The default IRS system is based on the calendar year, so fiscal-year taxpayers have to make some adjustments to the deadlines for filing certain forms and making payments. While most taxpayers must file by April 15 following the year for which they are filing, fiscal-year taxpayers must file by the 15th day of the fourth month following the end of their fiscal year. For example, a business observing a fiscal year from Jun 1 to May 31 must submit its tax return by Sept. 15.
In the United States, eligible businesses can adopt a fiscal year for tax reporting purposes simply by submitting their first income tax return observing that fiscal tax year. At any time, these businesses may elect to change to a calendar year. However, companies that want to change from a calendar year to a fiscal year must get special permission from the IRS or meet one of the criteria outlined on Form 1128, Application to Adopt, Change, or Retain a Tax Year.
Examples of Fiscal Years for Corporations
Investors might ask, "What fiscal year is it?" and it can vary from company-to-company. Below are examples of annual 10-K reports from popular companies. A 10-K is an annual filing of financial performance, according to their fiscal year, which is filed with the Securities and Exchange Commission or SEC.
Macy's Inc. (M) ended its fiscal year on February 2, 2019. This date makes sense since the company's financial-reporting year ends after the holidays, which is when retailers generate most of their earnings for the year.