Fiscal Year End S-Corp - Which Tax Year Return Should I Use?

But wait, I thought tax returns were based on when the majority of the fiscal year falls? Since more of the fiscal year (July-Dec 2022) is in 2022, wouldn't that mean using the 2022 forms? I'm confused because my accountant told me something different for my LLC.

The form you use is based on when the fiscal year begins, not when the majority of days fall. For a fiscal year that runs from July 1, 2022 to June 30, 2023, you would use the 2022 Form 1120-S because that fiscal year began in 2022. Your accountant might have been talking about a different situation with your LLC, as different entity types can have different rules. If your LLC is taxed as a partnership or disregarded entity, the rules might be applied differently than for an S-Corp.

How does taxr.ai compare to just asking my CPA? I have one but he's always super busy and takes forever to answer these kinds of questions. Does it really understand all the S-Corp fiscal year stuff or is it just generic info?

I'm a bit skeptical about AI tax tools. How does it handle state-specific S-Corp requirements? My state has some weird rules about fiscal year filers that even my accountant gets confused about.

It's actually quite different from asking a CPA because you can upload your actual documents and get answers based on your specific situation - I found it more thorough than my CPA who was juggling hundreds of clients. The system analyzes your exact scenarios rather than giving generic advice. For state-specific requirements, that's actually where I found it most helpful. I'm in California with some unusual S-Corp rules, and the system pulled the exact CA regulations that applied to my fiscal year situation and explained how they interact with federal requirements. It can analyze documents from any state tax authority.

Wait, this actually works? How do they get you through faster than just calling yourself? I've been waiting to ask about a similar fiscal year question but I've tried calling 3 times and gave up after being on hold for 45+ mins each time.

Sorry but this sounds like a scam. You're telling me some third party can somehow get through the IRS phone tree better than I can myself? And do they have access to your personal tax info? Seems sketchy to hand that over just to avoid a hold time.

They don't get you through any faster - they just wait on hold so you don't have to. When they reach an IRS agent, they call your phone and connect you directly. It's like having an assistant dial and wait on hold for you. They don't need or ask for any of your personal tax information. All they do is dial the IRS and wait in the queue. When an agent answers, you get a call to connect with that agent. I was skeptical too, but it worked exactly as advertised. I didn't share any personal info with them - I just shared that info directly with the IRS agent once I was connected.

Thanks this is super helpful! When I formed the S-Corp I did specifically request the June 30 fiscal year end but I'm not sure if I filed Form 1128. Is that something I need to do every year or just once when establishing the fiscal year?

You only need to file Form 1128 once when establishing or changing your fiscal year. If you properly selected your fiscal year when forming the S-Corp and the IRS accepted it, you're all set. If you're unsure whether your fiscal year was properly elected, you can check your S-Corp formation documents or your first tax return. If the IRS processed your previous returns based on your fiscal year without any notices or issues, that's generally a good sign that your fiscal year election is in place.

There can be advantages depending on your business cycle. If your business has a natural "slow season," setting your fiscal year to end during that time makes tax preparation easier since you're not trying to close books during your busiest period. For example, retail businesses often use January 31 fiscal year ends since holiday rush is over. Also, if you have multiple entities or investors with different year ends, aligning fiscal years can simplify financial reporting and tax planning.

That makes sense. My business is seasonal with our slow period in summer, so maybe a June 30 year end would work well for us. Does having a fiscal year make tax filing more complicated? Like do I need a special accountant who understands fiscal year S-Corps?

It's not necessarily more complicated, but you do want to make sure your accountant is comfortable with fiscal year filings. The main differences are the form dates and making sure your K-1 timing aligns properly with your personal tax return. For example, with a June 30 fiscal year end, your S-Corp return is due October 15, and you'll receive your K-1 by then. But since your personal return is still due April 15 of the following year, there's a gap where you need to plan for the tax impact of that K-1 income. Most experienced tax preparers handle fiscal year S-Corps regularly, but it's worth asking upfront to make sure they're familiar with the timing differences and any state-specific requirements for your situation.

This is really helpful advice! I'm new to S-Corp taxation and wasn't even aware that you needed to properly elect a fiscal year - I thought you could just pick whatever made sense for your business. When you mention demonstrating a "valid business purpose," what kinds of reasons typically qualify? Is having a seasonal business cycle usually sufficient, or do you need something more specific? Also, thanks for the tip about Form 4506-T - I had no idea you could request a transcript to check how the IRS has you classified. That seems like a smart move before filing to avoid any surprises down the road.

Valid business purposes for fiscal years typically include seasonal business cycles, matching your tax year to your natural business cycle, or aligning with industry standards. For example, if you're in retail and your busy season is November-December, ending your fiscal year in January makes sense because it captures your full business cycle in one tax year. Other examples include agricultural businesses that might use a fiscal year ending after harvest season, or service businesses that have natural project cycles. The key is demonstrating that your chosen fiscal year better reflects your business operations than a calendar year would. The IRS is generally reasonable about this - they're looking for a legitimate business reason rather than just tax avoidance. Seasonal businesses usually qualify without much difficulty, but you'll want to document your reasoning when you file Form 2553 or Form 1128. And yes, Form 4506-T is incredibly useful! It shows exactly how the IRS has your entity on file, including your tax year, entity type, and filing history. It's free and can save you from filing under the wrong year or format.

Great question about what to do if you discover issues with your fiscal year election! From what I understand, it's generally better to address any discrepancies sooner rather than later. If the IRS transcript shows they expect you to file on a different tax year than what you intended, continuing to file incorrectly could compound the problem. That said, the best approach really depends on what specific issue you find. If it's just a matter of the IRS not having your fiscal year election on file, you might be able to resolve it by filing Form 1128 with a reasonable cause statement. But if there are more complex issues, you'd probably want to consult with a tax professional who can review your specific situation. The key is not to ignore it - the IRS notices patterns, and if you're consistently filing under a different tax year than what they expect, it could trigger inquiries or audits down the road. Better to get it sorted out now while you're aware of the potential issue. Dylan Evans (@dd3d070ae4f8) might have more specific insights since they mentioned being a tax preparer who deals with these situations regularly.

This is exactly the kind of comprehensive guidance I was hoping to find! As someone who's completely new to S-Corp fiscal year filings, the step-by-step approach you've outlined makes this much less intimidating. I'm particularly grateful for the point about documenting everything - I realize I should probably gather all my formation documents, election forms, and any IRS correspondence before requesting that transcript. It sounds like having a complete paper trail will be crucial if there are any discrepancies to resolve. One quick follow-up: when you mention filing Form 1128 "with your next return," do you mean it gets submitted alongside the 1120-S, or is it a separate filing process? I want to make sure I understand the mechanics of how to properly document any fiscal year corrections. Thanks again for sharing your professional experience - it's incredibly valuable to get insights from someone who deals with these situations regularly rather than just trying to piece together information from various IRS publications.

Form 1128 is typically filed as a separate submission to the IRS, not attached to your regular 1120-S return. You'll need to file it by the due date of the return for the year you want the change to be effective, along with the required filing fee (currently $3,020 for most businesses, though there are some exceptions for automatic changes). However, there are some situations where you might include Form 1128 information with your return - for example, if you're making an automatic accounting method change that coincides with a fiscal year change. But for most standard fiscal year elections or corrections, it's a standalone filing. The key timing consideration is that Form 1128 generally needs to be filed by the 15th day of the 5th month of the tax year you want the change to take effect. So if you're trying to establish or correct a fiscal year for your current period, you'll want to act quickly to meet the deadline. One more tip: if you're just starting out and haven't filed any returns yet under the incorrect year, sometimes you can resolve the issue more simply by ensuring your initial S-Corp election (Form 2553) properly reflects your intended fiscal year, rather than going through the Form 1128 process. The specific approach really depends on your timeline and filing history.