In the business world, there are two types of years -- a fiscal year and a calendar year. According to BusinessDictionary.com, a fiscal year and financial year are one in the same. The only difference between the two is that individuals in the U.S. commonly use the term “fiscal year” when referring to a business accounting period.
Fiscal Year Overview
According to the Internal Revenue Service, IRS, a calendar year is a period of 12 months, which begin on January 1 and end on December 31. A fiscal year also contains 12 consecutive months, but can end on the last day of any month, with the exception of December. For example, a financial year can start on April 1 and end on March 31. The business world divides fiscal or financial years into quarters so companies can monitor the progress of their financial health and annual budgets during the year. Unlike a calendar year, a fiscal year can cover two calendar years, as it can start at any time during a calendar year and end 12 months later in the following calendar year.
The Importance of a Fiscal Year
If companies had to begin their financial year at the same time as a calendar year, they would have to wait until January 1 to conduct official business. The use of fiscal years, however, allows companies to begin their operations as soon as they are ready.
Tax Years vs. Fiscal Years
Regardless of a U.S. company’s financial year, it must also have a tax year when filing income tax returns. In the U.S., the tax year follows the calendar year or a company’s fiscal year. However, a company may have a short or non-existent tax year if it has not existed for 12 months when filing tax returns or it changed its accounting period. Once a company adopts a tax year, the IRS has to approve any changes a company wishes to make.
Financial Years Around the World
Each country has its own official, government fiscal year. For example, the United Arab Emirates, Ireland, Sweden, China and Portugal have financial years that begin at the same time as the calendar year. The fiscal year in the U.S. begins on October 1 and ends on September 30 of the following year. In the United Kingdom, the fiscal year begins on April 6 and ends on April 5 of the following year. Corporations may find that international financial years differ from those that individuals follow. For example, in Sweden, the fiscal year for an individual follows the calendar year, but the financial year for a corporation can start at the beginning of January, May, July or September.