40.4 Tax Reporting Year for Self-Employed

Your taxable year must be the same for both your business and nonbusiness income. If you report your business income on a fiscal year basis, you must also report your nonbusiness income on a fiscal year basis.

Generally, you report the tax consequences of transactions that have occurred during a 12-month period. If the period ends on December 31, it is called a calendar year. If it ends on the last day of any month other than December, it is called a fiscal year. A reporting period, technically called a taxable year, can never be longer than 12 months unless you report on a 52-to-53-week fiscal year basis, details of which can be found in IRS Publication 538. A reporting period may be less than 12 months whenever you start or end your business in the middle of your regular taxable year, or change your taxable year.

To change from a calendar year to fiscal year reporting for self-employment income, you must ask the IRS for permission by filing Form 1128. Support your request with a business reason such as that the use of the fiscal year coincides with your business cycle. To use a fiscal year basis, you must keep your books and records following that fiscal year period.

Fiscal year restrictions.

Restrictions on fiscal years for partnerships, personal service corporations, and S corporations are discussed in 11.11 and IRS Publication 538.

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