What Is a Tax Year?

A tax year is the year covered by a particular tax return. In the U.S., the tax year for individuals runs from Jan. 1 to Dec. 31 and includes taxes owed on earnings during the year. For example, taxes withheld or owed for earnings during calendar year 2019 would be included on the tax return that’s due to the Internal Revenue Service (IRS) in April of 2020. 

Key Takeaways

  • A tax year refers to the 12-month period that a tax return covers.
  • Individuals are subject to a calendar tax year, beginning Jan. 1 and ending Dec. 31.
  • Tax returns in the U.S. are generally due April 15 of the following year covering the calendar year period. 
  • Business taxes may be filed using a calendar year or a fiscal year, which may not coincide with a Jan. 1 start date.

Understanding a Tax Year

A tax year is an annual accounting period for paying or withholding taxes, keeping records, and reporting income and expenses. Individuals adhere to a calendar tax year, where taxes owed for 2019 would be due by April 15, 2020. Businesses can either use the calendar year or fiscal year for the start and end date of its tax year for income reporting.

A tax year that follows the calendar year refers to the twelve consecutive months beginning Jan. 1 and ending Dec. 31. The fiscal year is any twelve consecutive month period that ends on any day of any month, except the last day of December. When a company’s tax year is shorter than 12 months, it is simply referred to as a short tax year.

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 Dec. 31 as their tax year. These include sole proprietorships and single-member LLCs. These firms are required to end their tax year on Dec. 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, Sept. 30, or Dec. 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.

Types of Tax Years

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.

Short Tax Years

A short tax year is a fiscal or calendar tax year that is less than 12 months in length. Short tax years occur either when a business is started or a business’s accounting period changes. Short tax years occur only for businesses, never for individual taxpayers, because individuals must file on a calendar-year basis and do not have the option of choosing a fiscal year.

A short tax year can also occur when a business decides to change its taxable year, a change that requires the approval of the Internal Revenue Service (IRS) after the entity files Form 1128. In this case, the short tax period begins on the first day after the close of the old tax year and ends on the day before the first day of the new tax year. For example, a business that reports income from June to June every year decides to change its fiscal year to begin in October. Therefore, a short tax year from June to October must be reported.

Special Considerations

Individuals generally use a Dec. 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 Feb. 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 were expected to pay federal tax. The pool of taxpayers has grown significantly since then.