What a fiscal year is?

A fiscal year is a period of time during which a business or individual’s income and expenses are assessed for income tax. For most businesses and individuals, the fiscal year is the same as the calendar year, that is, January 1 to December 31. However, some businesses may have a fiscal year that does not match the calendar year. In this case, they must declare their income and expenses over the period of time which corresponds to their tax year.

Why is fiscal year used?

The fiscal year is used to evaluate the income and expenses of a business or individual to determine the amount of income tax that must be paid. This allows governments to collect taxes regularly and predictably, allowing them to fund the public services and programs they provide to their populations. Using the tax year also allows businesses and individuals to plan and manage their finances more effectively, by allowing them to know in advance how much their taxes will be and plan accordingly. Finally, the fiscal year is also used to assess a company’s financial performance over a period of time, which can be useful for investors and shareholders who want to get an idea of the company’s financial health.

How to define your financial year?

Decide on the time period

You should determine the time period that best suits your business. If the business has higher revenue during a certain time of year, it may be beneficial to set its tax year to include that time.

Check tax laws

It is essential to check the tax laws of your country or region to ensure authorisation to define your own tax year. Additionally, in some countries there may be restrictions and/or specific requirements regarding the definition of its own tax year.

Submit forms

Once permission to define your own tax year has been approved, you must then complete and submit the required forms to the appropriate taxing agency.

Inform affected parties

Finally, the last step is to inform all relevant parties, such as employees, suppliers and customers, of the start and end date of the defined fiscal year.