The first time you file a business tax return, you must determine whether your company will report revenue, expenses, and deductions based on a calendar year vs. fiscal year accounting period. According to the Internal Revenue Service, a calendar year runs from January 1 through December 31, while a fiscal year is any consecutive 12-month period ending on the final day of any month except December. Some fiscal year structures, especially in retail or merchant businesses, may span 52 to 53 weeks depending on reporting preferences.
A fiscal year does not have to end on the last day of the month, unless chosen specifically when adopting or requesting a change.
Why Accounting Periods Matter for Revenue Tracking & Funding
Simply choosing how you report taxes can also influence how your revenue trends are viewed in financial planning, forecasting, and even funding evaluations. For example, businesses that use receivables financing, such as factoring, often review how converting receivables to cash may impact year-end statements.
This type of financing is commonly used when merchants want faster access to working capital rather than waiting for customer payments. Large enterprises sometimes use a factor to exchange accounts receivable for cash to strengthen their balance sheet before year-end and report liquid assets instead of pending receivables.
Similarly, many merchant businesses explore financing options that align with their annual revenue performance, especially when revenue fluctuates seasonally. One option that works alongside business-year planning is revenue-based financing (RBF), offered by CFG Merchant Solutions, which evaluates funding capacity based on revenue trends rather than solely fixed calendar deadlines.
RBF can help merchants plan working capital in a way that adapts to actual performance across whichever year type their business operates under, calendar or fiscal, while keeping financial planning flexible and predictable.
Requirements to Adopt a Tax Year
Most business owners may choose the accounting period that fits their structure and operating cycle best, but the Internal Revenue Code does not consider your tax year officially selected if you only performed the following:
- – Applied for an Employer Identification Number
- – Paid first-year estimated taxes
- – Filed for a tax extension
- – Requested additional time to file without formally adopting a tax year
- Certain conditions may require a business to default to calendar year reporting, including:
- 1. The business lacks an annual accounting cycle
2. No formal bookkeeping structure exists
3. The current tax year does not meet the fiscal year definition requirements
Partial (Short) Tax Years
If your business was not operational for a full tax year or you changed your accounting period mid-cycle, the IRS categorizes this as a short tax year.
Even if you were only in business for part of the year, you are still required to file a return. Your taxes are calculated based on the final day of the short reporting period. Guidance for handling short tax years can be found in IRS Publication 538.
Many merchants with seasonal or fluctuating revenue cycles carefully review short tax year implications to preserve financial clarity when planning growth or preparing for funding evaluations.
Tax Year Changes & Form Requirements
To adopt, retain, or change your accounting period, businesses must file IRS Form 1128.
While some approvals are automatic with no fee, others may require a formal ruling and administrative costs, especially if the business does not meet the criteria for automatic approval.
Fiscal Year Reporting Often Benefits Seasonal Merchants
If you operate a highly seasonal business, such as hospitality, retail, or processing-heavy merchant services, calendar year reporting may split one selling season across two different tax filings.
For businesses that track profit and loss statements by season, calendar year revenue reporting can mix income from different seasons into the same annual statement, making forecasting less clear. A fiscal year allows retailers to report all activity from one full selling cycle together, creating cleaner financial statements, tax filings, and business books.
For merchants who later evaluate their funding options, including solutions like RBF, annual revenue grouping into a single selling cycle often creates a more accurate depiction of performance trends, which can be helpful when projecting future working capital needs.
Final Thoughts
Choosing between a calendar year or a fiscal year is primarily an accounting and tax decision, but for merchants, it is also a financial planning foundation.
Whether you’re aligning books, preparing short tax year filings, or evaluating working capital solutions like RBF from providers such as CFG Merchant Solutions, your chosen year type should reflect how your business earns, spends, and scales throughout the year.