What is a fiscal year?

A fiscal year is a 12-month period that businesses use to track and report financial activity. It does not have to follow the January-to-December calendar. Instead, companies choose start and end dates that align with their operations, revenue cycles, or industry norms.

Fiscal year vs. calendar year

A calendar year runs from January 1 to December 31. A fiscal year is any 12-month period your business chooses for tracking and reporting finances. The key difference is timing and that can shape how you plan, file, and report.

Over 65% of U.S. businesses follow the calendar year, mostly for simplicity. But if your business does not earn revenue evenly throughout the year, a custom fiscal year might give you cleaner financials and better reporting accuracy.

Why businesses use fiscal years instead of calendar years

In most businesses, the decision to adopt a fiscal year is made usually by the CFO, controller, or head of accounting. Most sole proprietors and partnerships must use the calendar year by default. But if you run a corporation or certain types of LLCs, you have the flexibility to choose a fiscal year that fits your operations. This choice must be documented during incorporation or changed later with IRS approval.

• Aligns with your operating cycle. If your revenue peaks in certain months, like holidays or harvests, a calendar year can split your performance in ways that don’t make sense. A fiscal year lets you close your books after your busiest period, so your numbers reflect the full cycle.
• Simplifies financial analysis and forecasting. Finance teams build budgets around operations, not the calendar. A fiscal year that matches your cost and revenue patterns leads to more useful forecasts and better decision-making.
• Enables cleaner year-over-year comparisons. Your comparisons become consistent when your accounting periods follow the same business flow each year. That helps you see true growth, not calendar-based noise.
• Aligns with industry practices. In retail, many companies end their fiscal year in late January to capture the holiday season. In education, fiscal years often follow the academic calendar. Agriculture, nonprofits, and federal government entities all use industry-aligned fiscal years to reflect activity more accurately.
• Supports tax strategy. In some cases, shifting the fiscal year can help smooth out income or manage deductions. That said, corporations must apply to the IRS for approval before changing their fiscal year, and the benefits depend on your structure and timing.
• Reduces friction during mergers or restructuring. A unified fiscal year makes integration easier when merging with another business or creating subsidiaries. It avoids overlapping periods and inconsistent reporting deadlines across entities.

Common fiscal year structures: Which one fits best?

Different businesses follow different financial cycles. Retailers often close their fiscal year in January to include holiday sales. Universities follow academic calendars. Nonprofits align with grant or funding cycles. The structure you choose depends on how your revenue flows, when your expenses hit, and what your industry expects.

Calendar year (January 1 – December 31)

The calendar year is the most common fiscal year structure. It starts on January 1 and ends on December 31, just like the standard calendar.

If you're a sole proprietor or partnership, the IRS typically requires you to use the calendar year unless you meet specific conditions. It also aligns with most tax filing deadlines, making it easier to stay compliant without extra paperwork.

This setup works best if your revenue and expenses stay fairly consistent throughout the accounting year. It also fits well if your business does not rely on seasonal activity or large end-of-year spikes.

Accounting software and payroll systems are usually pre-configured for the calendar year. That means less customization and fewer manual changes during setup. If your operations follow a predictable, year-round cycle, the calendar year offers a straightforward option that keeps things aligned across finance, tax, and reporting.

Non-calendar fiscal years (e.g., October 1 – September 30 or July 1 – June 30)

A non-calendar fiscal year begins in any month other than January and runs for 12 months. Common examples include October through September or July through June. This setup allows you to align financial reporting with how your business performs throughout the year.

These businesses often see revenue peaks that don’t align with the calendar year. Closing the books after a major season, rather than in the middle of it, helps capture a more accurate view of earnings, costs, and operational performance.

This structure is widely used in sectors where financial activity follows a predictable but non-calendar pattern. Many retail businesses close their fiscal year in January to capture holiday sales. Universities and schools typically follow academic timelines, often ending their year in June. In agriculture, fiscal years may center around planting and harvest cycles. Government entities and nonprofits often structure their year-round grant or funding schedules.

Switching to a non-calendar fiscal year requires IRS approval for most corporations. Once approved, your tax deadlines shift to match your fiscal year-end.

4-4-5 calendar

The 4-4-5 calendar is a fiscal structure that divides the year into quarters of 13 weeks. Each quarter has two 4-week months followed by one 5-week month. This method gives you evenly structured periods that simplify comparisons across months and quarters.

Retailers, wholesalers, and other businesses with a lot of inventory often use this model to track performance and manage stock more accurately. It’s especially common in companies where weekly data matters more than calendar dates.

This structure creates consistency. Every quarter has the same number of weeks, and each month always ends on the same day of the week, usually Saturday or Sunday. That helps finance teams compare sales trends, control costs, and close the books on a predictable schedule.

52/53-week year

A 52/53-week year is a fiscal year structure that totals either 52 or 53 full weeks rather than using fixed calendar dates. It’sdesigned to ensure that each fiscal year ends on the same day of the week, usually Friday, Saturday, or Sunday. This helps standardize financial comparisons across years.

Most 52/53-week calendars have 52 weeks, but an extra week is added once every five or six years to keep the year-end aligned. This happens because 52 weeks only cover 364 days, leaving a one-day gap that adds up over time.

Retailers, hospitality companies, and restaurants often use this model because they rely on weekly performance metrics. Ending each year on the same weekday improves consistency across payroll, inventory, and sales reporting.

Fiscal periods: How the fiscal year is divided

Your fiscal year is broken into smaller chunks called fiscal periods. These periods create structure around your financial reporting and help you track performance more accurately throughout the year.

Most businesses divide the fiscal year into 12 monthly periods or 4 quarters. Each period gives you a defined window to measure revenue, expenses, and profit. This makes reviewing performance, catching trends early, and closing your books on time easier.

You might also use a weekly-based structure, like the 4-4-5 calendar or 52/53-week year. In that case, each fiscal period might be four or five weeks long. This model keeps each period consistent in length and ensures that period-end dates fall on the same day of the week, which simplifies scheduling and reporting.

Each fiscal period ends with a financial close. This is when you reconcile accounts, record journal entries, and lock in your numbers for the period. A month-end close should take three to six business days. Most finance teams close their books monthly and use quarterly closes for deeper reviews, board reports, or external audits.

Your fiscal periods also determine when key tasks happen, like budget reviews, tax estimates, and performance reporting. If you manage these periods well, you avoid rushed closes, missed deadlines, and unexpected surprises in your finances.

You will set up fiscal periods in your accounting or ERP system. Once configured, your reporting, forecasting, and workflows follow that structure. If your fiscal calendar isn’t set up properly, it can throw off reporting accuracy, delay closes, and create confusion across teams.

Some businesses also define “hard closes” and “soft closes” within periods. A soft close gives you early visibility with partial data, while a hard close finalizes all entries. Knowing which one you are doing and when keeps your team aligned.

When you define fiscal periods clearly, you streamline how your team closes the books. Tools like Ramp help automate transaction coding and sync data with your accounting system in real time, reducing close timelines and increasing reporting accuracy.

Can you change your fiscal year?

You can change your fiscal year, but the process depends on how your business is structured. If you're a corporation, you're allowed to select your fiscal year. However, once you establish it, you must get IRS approval to change it. To do this, you must file Form 1128 and provide a valid reason for the change.

Sole proprietors, partnerships, and S corporations face more restrictions. These types of businesses must generally use the calendar year unless they can demonstrate a substantial business purpose for using a different fiscal year. Without that justification and without IRS approval, the calendar year remains mandatory.

How to change your fiscal year

The full fiscal year change process, from preparing your request to receiving IRS approval, can take 6 to 12 weeks. This depends on how quickly you gather the required information and how the IRS handles your submission.

• Step 1: Define your reason for the change. Prepare a business case that explains why the new fiscal year makes sense. Common reasons include seasonal revenue cycles, alignment with a parent company, or industry reporting norms. You will need to explain this in your application, so be specific.
• Step 2: Complete and file IRS Form 1128. Submit Form 1128 to formally request approval from the IRS. Include the old fiscal year, the proposed new dates, and your supporting explanation. If you have changed your fiscal year before, disclose that history and explain why this new change is necessary.
• Step 3: File a short tax year return during the transition. When you change your fiscal year, you will create a short tax year that covers the gap between the old and new reporting periods. For example, moving from a December year-end to June means filing a return just for January through June. This return ensures you stay tax-compliant through the switch.
• Step 4: Update your accounting system and financial calendar. Once approved, reconfigure your accounting software to reflect the new fiscal year. Update all internal reporting timelines, budget templates, and close schedules. Make sure the changes flow across every tool your finance team uses.
• Step 5: Notify internal and external stakeholders. Let your board, auditors, investors, and lenders know about the change. If your contracts, financial covenants, or reporting obligations reference a specific year-end, review them to see if they need to be amended or renegotiated.
• Step 6: Adjust financial workflows and planning cycles. Realign your forecasting, payroll timelines, and performance reviews with the new fiscal calendar. Work with your finance team to ensure everyone understands how the change affects reporting deadlines and budgeting cycles.

When you update your fiscal year, your accounting software must reflect the change. Ramp integrates with your ERP and accounting stack to apply fiscal calendars consistently across all transactions, reducing the risk of misalignment.

How fiscal years affect tax filings

Your fiscal year determines when you file business taxes and how you report income and expenses. If you use a calendar year, your income tax return is due by March 15 for S corporations and partnerships or April 15 for C corporations and sole proprietors. If you use a non-calendar fiscal year, your tax deadlines shift based on your year-end.

For example, if your fiscal year ends on June 30, your corporate tax return is due by the 15th day of the third month after year-end, which will be September 15 in this case. These shifting deadlines can help with cash flow planning and tax strategy, especially if your income varies seasonally.

Changing your fiscal year means you may need to file a short tax year return during the transition. The IRS uses this to bridge the gap between your old and new reporting periods. It ensures your income is taxed properly and that your filings have no missed months.

If you're a C corporation, you can choose any fiscal year. However, S corporations, partnerships, and sole proprietors must use the calendar year unless they qualify for an exception and get IRS approval. Using the wrong fiscal year can result in penalties or rejected returns without approval.

Your fiscal year also affects estimated tax payments. These payments are based on your expected income and follow the timing of your reporting year. If your year-end changes, your payment schedule changes too.

To stay compliant, make sure your accounting records match your IRS filings. If you shift to a non-calendar year, update your tax calendar, notify your accountant, and track any changes in filing requirements.

Choosing the right fiscal year sets the foundation for better financial decisions

The fiscal year you choose affects more than just your reporting dates. It shapes how you plan the budget process, close your books, and stay compliant with tax rules. A well-aligned fiscal year gives you a clearer view of business performance and improves how you manage cash flow, seasonal trends, and strategic goals.

Most small businesses default to the calendar year. But that does not mean it’s the best fit for everyone. A custom fiscal year may offer stronger financial insight and better control if your revenue cycle, industry norms, or operational structure calls for a different timeline.

But choosing the right structure is only part of the equation. To make the most of it, you need tools that support your fiscal calendar, not work against it.

Ramp automates key accounting tasks, like transaction categorization, receipt matching, and real-time syncing with your ERP or accounting software. When your fiscal periods shift, Ramp adjusts with them, ensuring every transaction is coded correctly and reflected in the right reporting window. It also helps you speed up the month-end close, reduce manual cleanup, and maintain audit-ready records across any fiscal year setup.

FAQ

Is a fiscal year the same in every country?

Fiscal year definitions and requirements vary by country. For example, the U.K. tax year runs from April 6 to April 5, while Australia’s fiscal year runs from July 1 to June 30. If you operate internationally, you may need to manage multiple fiscal calendars based on local laws.

Can I have different fiscal years for financial and tax reporting?

Yes, but it depends on your jurisdiction and structure. Some businesses use one fiscal year for internal reporting and another for tax filings, especially if they follow international accounting standards. However, this adds complexity and may require additional reconciliation during reporting.

Can nonprofits choose their own fiscal year?

Most nonprofits choose a fiscal year based on their funding cycles or program schedules. Many follow a July–June structure to match the academic or grant calendar. The IRS allows this, but the organization must remain consistent and disclose the fiscal year in its filings.