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Thursday, August 3, 2017

Accounting Periods



Taxable income is computed on the basis of a taxpayer's tax year.

Tax Year of 12 Months

A tax year is the annual accounting period regularly used by a taxpayer in keeping books and records to compute income.

There are two common accounting periods.

1-Calendar Year (a period of 12 months ending on December 31).

2-Fiscal Year (a period of 12 months ending on the last day of any month other than December).

Short Tax Year

A short tax year is a period of less than 12 months and is common when a new business comes into existence after January 1 of its initial year and or when a business closes sometime during its last year in existence other than on December 31.

Keeping Business Records

A taxpayer should keep business records based on the accounting period used for computing taxable income when filing income tax returns.

Certain business entities MUST use a specific accounting period prescribed by the IRS

An S Corporation or a Personal Service Corporation must use a calendar year unless the entity can establish a business purpose for having a different tax year. A Partnership must use the same tax year as that of its owners, unless the entity can establish a business purpose for having a different tax year.

 
This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

 

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