Accounting Periods

When preparing a statement of income and expenses (generally your farm income tax return), you must use books and records kept for a specific interval of time called an accounting period. The annual accounting period for your tax return is called a tax year. You can generally use one of the following tax years.

• A calendar year.
• A fiscal year.

However, special restrictions apply to partnerships, S corporations, and personal service corporations. If you operate as one of these entities, see Publication 538 for more information.

You adopt a tax year when you file your first income tax return. You must adopt your first tax year by the due date (not including extensions) for filing a return for that year.

Calendar year. A calendar year is 12 consecutive months beginning January 1 and ending December 31.

You must adopt the calendar year if any of the following apply.

• You do not keep adequate records.
• You have no annual accounting period.
• Your present tax year does not qualify as a fiscal year.

If you filed your first income tax return using the calendar year and you later begin business as a farmer, you must continue to use the calendar tax year unless you get IRS approval to change it. See Change in tax year, later.

If you adopt the calendar year you must maintain your books and records and report income and expenses for the period from January 1 through December 31 of each year.

Fiscal tax year. A fiscal year is 12 consecutive months ending on the last day of any month except December. A 52-53 week tax year is a fiscal year that varies from 52 to 53 weeks but may not end on the last day of a month.

If you adopt a fiscal year you must maintain your books and records and report your income and expenses using the same year.

For more information on a fiscal year, including a 52-53 week tax year, see Publication 538.

Change in tax year. Once you have chosen your tax year, you must, with certain exceptions, get IRS approval to change it. To get approval, file Form 1128. You may have to pay a fee. For more information, see the Form 1128 instructions.

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