WHAT IS A 'Tax Year'

A tax year refers to the 12-month period covered by a particular tax return. The Internal Revenue Service allows some flexibility in determining the start and end dates of a tax year, and it is not necessarily the same period as a fiscal year.

BREAKING DOWN 'Tax Year'

A tax year is an annual accounting period used by a taxpaying individual or firm for tax purposes. The U.S. Internal Revenue Service (IRS) allows most businesses to use either a calendar year or the firm’s fiscal year as its tax year. Exceptions to this are firms that are required to use the calendar year ending December 31 as their tax year. These include sole proprietorships and single-member LLCs. These firms are required to end their tax year on December 31 because they generally pay taxes as an extension of their single owner.

Whatever method is used to define a tax year, the IRS requires that all firms end their tax year on a quarterly basis, so all tax years should end on March 31, June 30, September 30 or December 31. The IRS identifies firms with non-calendar year tax years by their selected tax year end date. The IRS discourages businesses from changing their treatment of the tax year except in the first or last year of a business. Written IRS approval is required to do so.

Individual Taxpayers’ Federal Tax Year

Individuals generally use a December 31 tax year, with an annual return due on April 15 of the following year.  When the 16th Amendment was passed in 1913, granting taxation authority to the federal government, Congress designated February 1 as tax filing day. This date was moved progressively backward to where it is today, on April 15. Some commentators have suspected that this has allowed the government to hold onto taxpayers’ money longer. Whatever the case, the movement from February to March to April has coincided with an increase in the pool of eligible taxpayers. When the 16th Amendment was passed, a small number of very wealthy individuals was expected to pay federal tax. The pool of taxpayers has grown significantly since then.

State Tax Years

Every state handles taxation independent of the federal system, but most that do impose income taxes use April 15 as their required filing date. Virginia is one exception, with a filing deadline of May 1. Several states that do not charge income taxes impose taxes on other revenue, such as stock dividends. New Hampshire, which has no income or sales tax, compensates by charging a relatively high property tax. New Hampshire property tax rates are set annually in November, and the property tax year runs from March 21 to April 1 for all property owners.

RELATED TERMS
  1. Effective Tax Rate

    The effective tax rate is the average rate at which an individual ...
  2. Tax Return

    A tax return is a form(s) filed with a taxing authority which ...
  3. Income Tax Payable

    Income tax payable is an account in the balance sheet's current ...
  4. Net of Tax

    Net of tax is an accounting figure that has been adjusted for ...
  5. Individual Tax Return

    An individual tax return is a tax form filed with a tax agency ...
  6. Tax Break

    A tax break is a savings on a taxpayer's liability. It is also ...
Related Articles
  1. Taxes

    Use Tax Vs. Internet Sales Tax: How Are They Different?

    Learn about the differences between a use tax and an Internet sales tax. Find out about transactions in which the taxes apply, and to whom they apply.
  2. Taxes

    How To File A Canadian Tax Return

    The process for filing a Canadian tax return is easy and streamlined. Here is the information you need to know before filing.
  3. Taxes

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  4. Taxes

    Confused About Estimated Tax Deadlines for 2016?

    If you run a business or have investment income, pay attention to this year's estimated tax deadlines. Here are the details, and what's new for 2016.
  5. Taxes

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  6. Taxes

    Comparing Long-Term vs. Short-Term Capital Gains Tax Rates

    Learn about the difference between short- and long-term capital gains and how the duration of your investment can impact your tax liability.
  7. Taxes

    The Unseen Taxes That You Pay Every Day

    Taxes are embedded in the price of everything we buy to an extent that most people don't even realize.
  8. Taxes

    Get a 6-Month Tax Extension

    Discover how to get some extra time from the IRS, without paying a hefty penalty for the privilege.
  9. Taxes

    10 States With High Sales Taxes

    Most states have sales taxes of some kind for goods and services. Here's a rundown of the states that have the highest sales taxes.
  10. Taxes

    6 Sources for Free Tax Help

    From community-based services to free software, there are many free resources to help with your taxes.
RELATED FAQS
  1. Do I need to file an income tax return every year?

    Understand if a person needs to file a tax return every year. Learn the benefits of filing a yearly income tax return even ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center