Tax Year

What Is a Tax Year?

A tax year is the year calendar year covered by a tax return. In the U.S., the tax year for individuals runs from Jan. 1 to Dec. 31 and incorporates taxes owed on earnings during that period.

Taxes kept or owed for earnings during the calendar year 2020, for instance, would be remembered for the tax return that will be shipped off the Internal Revenue Service (IRS) by most taxpayers in 2021.

The 2020 federal income tax filing cutoff time for individuals had been extended from April 15, 2021, to May 17, 2021. Payment might have been delayed to a similar date. Your state tax cutoff time might not have been delayed.

As a prominent exception, on the off chance that you were a casualty of the sad February 2021 Texas blizzard, your cutoff time for filing your 2020 federal taxes has been moved to June 15, 2021. On the off chance that you don't live in Texas yet were impacted by the tempest, you might in any case be eligible.

Grasping a Tax Year

A tax year is an annual accounting period for paying or withholding taxes, keeping records, and reporting income and expenses.

Working class individuals pay taxes all through the calendar tax year. From the get-go in the next year, typically on April 15, they report the wages they paid to the Internal Revenue Service (IRS) and either pay any shortfall in their taxes due or request a refund of taxes overpaid.

Self-employed individuals and small business owners generally file quarterly to report their incomes and pay an estimate of the taxes they owe for that quarter. They likewise file annual records to square the accounts and either pay the difference or request a refund.

Businesses can utilize either the calendar year or the fiscal year (FY) for the beginning and end date of their tax year for income reporting.

A tax year that follows the calendar year alludes to the 12 successive months beginning Jan. 1 and ending Dec. 31. The fiscal year is any period of 12 back to back months that closures on any day of any month, with the exception of the last day of December. At the point when an organization's tax year is shorter than 12 months, it is just alluded to as a short tax year.

However the IRS permits most businesses to utilize either a calendar year or the company's fiscal year, there are exceptions. Taxpayers who file utilizing the calendar tax year and later beginning a sole proprietorship, become a partner in a partnership, or become a shareholder in a S corporation must keep on filing utilizing the calendar year except if they get IRS endorsement to change it.

Types of Tax Years

Notwithstanding calendar and fiscal tax years, there are additionally state tax years and, as referenced above, short tax years.

State tax years

Each state handles taxation freely of the federal system, yet most impose income taxes and use April 15 as their required filing date. Virginia is an exception, with a filing cutoff time of May 1.

Several states don't have income taxes. New Hampshire, which has no income or sales tax, remunerates with generally high property taxes. The New Hampshire property tax year runs from April 1 to March 31 for all property owners.

Short tax years

A short tax year is a fiscal or calendar tax year that is under 12 months long. Short tax years happen either when a business is begun or when a business' accounting period changes. Short tax years as a rule happen just for businesses. Generally, individual taxpayers must file on a calendar-year basis and don't have the option of picking a fiscal year.

A short tax year can likewise happen when a business chooses to change its taxable year, a change that requires the endorsement of the IRS after the entity files Form 1128. In this case, the short tax period starts on the first day after the close of the old tax year and finishes on the day preceding the first day of the new tax year.

Suppose a business that reports income from one June to another consistently chooses to change its fiscal year to start in October. Therefore, that business must report a short tax year from June to October.

History of the Tax Year

Individuals generally utilize a Dec. 31 tax year, with an annual return due on April 15 of the next year, however that wasn't generally the case. When the 16th Amendment was passed in 1913, allowing taxation authority to the federal government, Congress designated March 1 as tax filing day. This date was moved logically later to where it is today, on April 15.

At the point when the cutoff time was changed in 1954, the IRS guaranteed that it assisted with spreading out the responsibility due to such countless returns showing up on the double. Regardless, the movement to April has harmonized with an increase in the pool of eligible taxpayers. At the point when the 16th Amendment was passed, a small number of extremely rich individuals were expected to pay federal tax. The pool of taxpayers has developed fundamentally from that point forward.

Highlights

• A tax year alludes to the year period that a tax return covers.
• Individuals are subject to a calendar tax year beginning Jan. 1 and ending Dec. 31.
• Business taxes might be filed utilizing a calendar year or a fiscal year.
• Tax returns in the U.S. are typically due on April 15 of the next year covering the calendar year period.