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Q.What's the difference between a calendar and a fiscal year?

A.Every business is required to maintain its accounting and tax records based on what the IRS calls a "taxable year." A taxable year can be either a calendar year, or a fiscal year. A calendar, which is typically used by most small businesses and by S-corporations, begins on January 1 and ends on December 31. A fiscal year, by contrast, is any 12 month accounting period ending on the last day of any month other than December.

Most small businesses use a calendar year simply because its easier. Fortunately or not, the IRS prefers it when a company selects a calendar year.

In fact, absent a valid business reason sole-proprietors, partnerships, s-corporations, and limited liability companies that select partnership taxation must use the calendar year. Regular C-corporations, however, can opt for a fiscal year.

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