Fiscal Year (FY)

Fiscal Year (FY): Definition and Practical Guide

What is a fiscal year?

A fiscal year (FY) is any consecutive 12-month period an organization uses for accounting, budgeting, and financial reporting. Unlike the calendar year (Jan 1–Dec 31), a fiscal year can begin on any date. Organizations label a fiscal year by the year in which most of the period falls (for example, FY2025 might run Feb 1, 2025–Jan 31, 2026).

Why organizations use a fiscal year

Organizations choose a fiscal year to align reporting with their operational and revenue cycles. Common reasons include:
* Matching financial reporting to seasonal sales (retailers often end FY after the holiday rush).
* Aligning with academic cycles (many schools run July 1–June 30).
* Coordinating with grant or funding schedules for nonprofits.
This alignment produces clearer year-over-year comparisons and more meaningful internal budgeting.

Examples

• U.S. federal government: Oct 1–Sept 30.
• Apple: fiscal year ending in September, to group product launches and holiday sales.
• Walmart: fiscal year ending Jan 31, to include the full holiday season.
• Microsoft: July 1–June 30, aligning with enterprise and education purchasing cycles.

Fiscal year vs. calendar year — key advantages

• Flexibility: Any consecutive 12 months can be used.
• Better alignment: Reports reflect natural business cycles and seasonality.
• Improved comparisons: Year-over-year metrics are more meaningful when entire seasonal periods fall within one fiscal year.
• Operational ease: Spreads end-of-year accounting tasks away from peak business periods.

U.S. tax and filing implications

Federal tax filing deadlines depend on entity type and the fiscal year end:
* C corporations (Form 1120): generally due by the 15th day of the fourth month after the fiscal year ends (e.g., Apr 15 for a Dec 31 year end).
* S corporations (Form 1120‑S) and partnerships (Form 1065): due by the 15th day of the third month after the fiscal year ends (e.g., Mar 15 for a Dec 31 year end).
* Individuals must use the calendar year and file by the 15th day of the fourth month after year end.

Some entities face restrictions:
* S corporations and many personal service corporations (PSCs) generally must use a calendar year unless they can demonstrate a valid business purpose for a different tax year.

Tax planning opportunities

Choosing an appropriate fiscal year can offer tax management benefits:
* Income deferral: Selecting a year-end before peak revenue can postpone recognition and associated tax liability.
* Timing expenses: Scheduling major purchases or capital expenditures to maximize deductions in the desired tax period.
* Loss harvesting: Aligning losses (inventory write-downs, disposals) to offset profits within the same fiscal year.

These strategies require careful consideration of IRS rules and long-term implications.

Changing a tax year

Switching between calendar and fiscal years or changing an existing fiscal year requires IRS approval in many cases. Form 1128 is used to request a change in accounting period. The transition often creates a short tax year, which has special reporting and tax-calculation requirements. Plan transitions thoroughly to address financial comparisons, stakeholder communications, and system adjustments.

Takeaway

A fiscal year is a flexible accounting period that helps organizations match financial reporting to operational realities. The right fiscal year can improve financial clarity, simplify year-over-year analysis, and enable tax-planning opportunities, but it also introduces filing rules and potential restrictions. Choose a fiscal or calendar year based on your organization’s industry cycle, operational needs, and regulatory requirements.