Unexpected short period year end for business tax filing - need help!

Just got blindsided by one of my newer business clients yesterday. They casually mentioned they changed their fiscal year end date mid-year, creating a short tax period that we weren't prepared for at all! Apparently they did this back in August but never thought to tell us until now when we're scheduling their year-end work. This completely throws off our tax planning strategy we had in place. We'll now need to file a short period return and then prepare for another full year return shortly after. I'm worried about the implications for their depreciation schedules, estimated tax payments, and whether we need to formally notify the IRS about this change. Has anyone dealt with this kind of surprise before? What forms do we need to file for the change? And should I be concerned about any red flags this might raise with the IRS? I'm especially wondering about the timing requirements - is it too late to properly notify the IRS about a change that already happened months ago?

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18 comments

Evelyn Kim

•8M

This happens more than you'd think! For a short tax year due to a change in accounting period, your client needs Form 1128 "Application to Adopt, Change, or Retain a Tax Year." Depending on the type of business entity, they might qualify for automatic approval or need to request specific approval. For depreciation, you'll need to prorate based on the number of months in the short period (each month being 1/12 of the annual amount). Estimated tax payments also need adjustment - they should have been recalculated when the year-end changed. The timing question is important - technically, Form 1128 should be filed by the due date of the first return that includes the short period. If they've missed that window, you may need to include a reasonable cause statement explaining the delay. Don't panic though - I've seen the IRS be fairly understanding about this if you're forthcoming about the situation.

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Evelyn Kim

•8M

You've identified an important consideration. For individual taxpayers and some pass-through entities, a short tax year could create bracket compression issues. Income must be annualized when calculating tax liability for a short period, which helps prevent bracket distortion. For corporations, they must annualize their taxable income by multiplying their short period income by 12 and dividing by the number of months in the short period. Then calculate the tax on this annualized amount and prorate it back based on the number of months in the short period. This helps prevent the exact issue you mentioned with effective tax rates being skewed.

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Henrietta Beasley

•8M

I had a similar issue last year and found https://taxr.ai to be a lifesaver. My client did the same thing - changed their fiscal year without telling me until it was almost too late. I uploaded their documents to the site and it analyzed everything, flagged the fiscal year change automatically, and outlined all the forms we needed to file including the 1128. It also provided a customized checklist for the short period return including all the prorations needed for depreciation and deductions. The system even helped me draft the reasonable cause statement since we were a bit late with the notification to the IRS.

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Henrietta Beasley

•8M

The depreciation calculations were spot-on. It correctly identified which assets were subject to the mid-quarter convention and applied the short-year proration factors correctly. It even flagged a few assets I had misclassified previously which could have caused issues. Yes, it absolutely works for partnerships too. It handles all entity types - partnerships, S-corps, C-corps, and even sole proprietorships. For partnerships specifically, it walks you through the 52-53 week year considerations and the separate processes for showing the short year on both the partnership return and the partners' K-1s. Saved me hours of research.

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Faith Kingston

•8M

Just wanted to follow up about my experience with taxr.ai after asking about it. I wound up trying it for my partnership client's year-end change and it was incredibly helpful! The system automatically generated all the necessary forms and even provided a customized checklist for ensuring the short-year reporting was done correctly on both the 1065 and the partners' K-1s. The best part was how it handled the income allocation for the final short year - it provided clear guidance on the methods available and the pros/cons of each approach. My clients were impressed with how smoothly we handled the transition. Definitely recommend it to anyone dealing with fiscal year changes!

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Emma Johnson

•8M

If you're struggling to get clarification from the IRS about your specific situation (which is likely given their notorious phone lines), I'd recommend Claimyr https://claimyr.com - they helped me get through to an actual IRS agent within 45 minutes when I had a similar short-year filing situation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was skeptical at first, but after spending days trying to get through the normal IRS channels with no luck, I gave it a shot. The IRS agent I spoke with provided specific guidance on how to handle the late notification for the fiscal year change and what supporting documentation to include with the return to avoid penalties.

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Emma Johnson

•8M

They use a combination of smart dialing technology and hold-time monitoring that secures your place in the queue. It's not just auto-dialing - they have a system that navigates the IRS phone tree and then calls you once they've secured a place in line with a real agent. They'll even tell you approximately how long until an agent is available. I was extremely skeptical too - I'd been trying for over a week with no success. But I was desperate because my client's situation was time-sensitive. I was actually shocked when I got the call back saying an agent was available. The IRS agent even provided me with their direct extension for follow-up questions, which saved even more time later.

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Olivia Garcia

•8M

I need to apologize and follow up on my skeptical comment about Claimyr. After continuing to struggle with reaching the IRS, I decided to try it myself out of desperation. I'm honestly shocked - I got connected to an IRS agent within about 35 minutes! The agent was able to confirm exactly what forms we needed for our client's short period situation and gave specific advice about how to explain the late notification. They even mentioned that they're seeing a lot of these cases right now and gave tips on avoiding common filing errors. Saved me hours of research and uncertainty. Sometimes being proven wrong is actually a good thing!

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Noah Lee

•8M

New York does have specific requirements. They generally conform to federal for the fiscal year change itself, but you need to file Form CT-300 to report the change for corporation franchise tax purposes. They're particularly strict about timely notification. Texas doesn't have a specific form but requires a letter of explanation attached to the franchise tax report covering the short period. Florida is generally easier - they usually just require that you check a box on their form F-1120 indicating it's a short-year return and provide an explanation.

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