What and When is the Tax Calendar Year?

 

The term “tax year” may seem simple, but it actually causes a lot of confusion for a lot of people. However, if you put in a little effort to properly understand what it is and when it occurs, you can save yourself a lot of hassle.   

It Really is a Calendar Year . . .  

First of all, know that the tax year really is just a standard calendar year, at least for most people. Just like the regular year, it runs from January 1st to December 31st. The only difference is that, when you file on your tax deadline, you’re filing for the previous year. So, when you file in 2021, for example, you’re actually filing your 2020 taxes, which makes sense because 2021 isn’t even halfway over at that point!  

But It Doesn’t Necessarily Have to Be  

While most taxpayers will file and pay their taxes based on the calendar year, you don’t necessarily have to do it that way. If you prefer, you can file using the fiscal year formula. In this situation, your fiscal year can end on the last day of any month except December since that day reflects the calendar year formula.  

Organizations—this option is not generally used by individual taxpayers—have various reasons for using the fiscal year formula. If you think it could be right for you, you’ll need to talk the option over with a tax professional, and you’ll also need to go through the required steps to get approval from the IRS for filing your taxes this way.  

The Rules Do Change  

Hopefully, some of your confusion over what constitutes a “tax year” has been cleared up. But, there are still a few other things to understand. For one, know that tax rules do change from year to year, and you’ll need to keep the most current set of rules in mind when you file your annual taxes.  

For this reason, it’s highly advisable to use tax software that’s up to date and that can factor in changes for you or, even better yet, to work with a professional accountant who knows the ins and outs of tax laws and the most recent changes to these laws.  

Yes, taxation can be confusing. But, taxes aren’t something that ever go away, so you must do your best to regularly educate yourself and to seek the right help when necessary. After all, calendar year after calendar year (or fiscal year after fiscal year, as the case may be), you’ll have to keep right on filing no matter what!