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FABQuest
12-22-2009, 04:45 PM
Hello, this is my first post and really the reason I joined. I started a new company Feb of 09, structured as a C Corp so this is my first year of operation. I set up fiscal year end in QuickBooks as a normal calendar year, meaning my year ends Dec. 31st. I would like to change this to the end of January. Beyond the obvious QuickBooks update, do I need to submit a form or request this change from any government entity (IRS) etc.? I have heard that in your first year of business you just choose/change your date without further action....

Thanks,
FAB Quest Dave

The Entrepreneurs Network
12-22-2009, 05:24 PM
IRS guidelines on fiscal year definition can be found here:
Tax Years (http://www.irs.gov/businesses/small/article/0,,id=98673,00.html)

The paragraph re changing the tax year reads as follows:

Changing your tax year
Once you have adopted your tax year, you may have to get IRS approval to change it. To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year (http://www.irs.gov/pub/irs-pdf/f1128.pdf) (PDF). See the instructions for Form 1128 for exceptions. If you qualify for an automatic approval request, a user fee is not required. If you do not qualify for automatic approval, a ruling must be requested and a user fee is required. See the instructions for Form 1128 for information about user fees if you are requesting a ruling.


I hope this helps.

FABQuest
12-22-2009, 05:27 PM
This is really a stupid question, but where would have I elected my fiscal year date to begin with? EIN application? That has been my only IRS contact to date.

Evan
12-22-2009, 09:55 PM
You have NOT adopted a tax year simply by filing the SS-4.

Assuming there isn't a restriction otherwise on your type of business (probably not), you elect your tax year by filing the 1120. To change it, you'd need to file the 1128.

If you are going to elect to be an S-Corp, I would recommend keeping a calendar year.

FABQuest
12-22-2009, 11:54 PM
Thanks Evan!
While I was waiting for responses I looked up the online SS-4 app and it does ask what your fiscal year will be. Am I not bound to this entry?
Being able to select my date by submitting my first tax return would be wonderful. The info provided with my EIN docs did say I need to submit the return by March 15th if that is of any interest to anyone here.

FAB Quest Dave

vangogh
12-23-2009, 12:57 AM
If you are going to elect to be an S-Corp, I would recommend keeping a calendar year.

Just curious, but is there a specific reason for doing that? It's probably what I would do by default anyway, but I always wondered why some companies have years not in line with the calendar year. I wondered if there was some advantage or if they simply started the year in the month they opened for business or went public or some other milestone in the life of the company.

FABQuest
12-23-2009, 01:19 AM
S corps are required to report using a calender year as far as I know because your profits (and tax liability) pass through to the share holders whom must report this income or loss on their personal tax return. Lots of profitable reasons to push your fiscal and personal year ends away from each other.

vangogh
12-23-2009, 10:30 AM
Oh, makes sense. I take it the same rules don't apply to a C Corp though.

Business Attorney
12-23-2009, 11:21 AM
Oh, makes sense. I take it the same rules don't apply to a C Corp though.

Your assumption is correct. Since C corporations report income and pay taxes on their own returns, the rules on selecting a fiscal year that apply to S corporations and other pass-through entities do not apply to C corps.

Evan
12-24-2009, 12:15 AM
If you had an extremely compelling reason, the IRS may allow for a fiscal year other than the calendar year for an S-Corp (or a partnership) -- but unlikely. Taxpayers generally follow a calendar year, and the rule is "if it ain't broke, don't fix it".

As the C-Corporation is a seperate legal entity and nothing flows through (it pays its own tax), it may elect to have a different fiscal year. Non-profit organizations also have different year ends.

For example, a school-related organization may want to have an August 31 year end if the school year begins in September each year, as it'll provide for a better picture of what actually happened in that year.

Dave -- I'm assuming you know what you're in for by keeping your corporate entity a C-Corp.

FABQuest
12-24-2009, 01:38 AM
I have a pretty good handle on C vs. S. I may elect S further down the road but at this time it makes more financial sense to let the company pay any taxes that may be due on its first return.

Evan
12-24-2009, 11:46 PM
I have a pretty good handle on C vs. S. I may elect S further down the road but at this time it makes more financial sense to let the company pay any taxes that may be due on its first return.

Then you're aware that for tax purposes:

-- C-Corps don't have net losses, as they are suspended until there is net income. With an S-Corp, such a loss would be offsetting your earned income, thereby decreasing your current year tax liability.

-- Corporations are poor entities to place real estate or ANY appreciating asset in.

-- If you convert to an S-Corp and have retained earnings from when you were a C-Corp, everything is going to get pushed into this S-Corp and there will be a bit more paperwork involved. And when you decide, at some point, to do a distribution, there is a process in place to reduce the retained earnings when you were a C-Corp before you get the S-Corps earnings "tax free".

-- If you're an S-Corp, income flows through to your personal return, which increases your basis in the entity. As this doesn't occur in a C-Corp, if you were to sell your stock at some point, you would have a lower basis resulting in a higher tax.

-- If you make charitable contributions, under a C-Corp those are limited to 10% of your corp's net taxable income (before these contributions). If it exceeds it, they are carried forward. If you were an S-Corp, they'd flow through to your personal return and end up on Schedule A, where they are deductible up to 50% of your modified AGI.

FABQuest
12-30-2009, 02:39 AM
I thought I'd put tidy answer here at the end for anyone that may be looking for the complete answer to the original question in one post.
In your first year of existence, a c-corp may adopt its fiscal year when filing its first 1120 tax return, as stated by Evan earlier in this thread. You are not bound by the date you entered as your fiscal year when filling out your EIN application. This is considered an exemption to the normal tax rule and only applies to C corps in their first year of existance and have not filed their first return. This information was provided by an IRS rep....yes I made the call and sat on hold for 25 minutes.

Evan
12-30-2009, 06:30 PM
yes I made the call and sat on hold for 25 minutes.

Were you on the express line? The practitioner's line takes much longer than that!

FABQuest
12-30-2009, 08:56 PM
Actually about 25 to get to someone who didn't feel comfortable with the exception to the rule they were reading so another 10 to get to an attorney who verified the rule/exception. Not bad with a headset on...just keep plugging away at other stuff....

Evan
12-30-2009, 09:53 PM
An attorney who verified the rule/exception? Well, I should say that any answer they gave you is not legally binding and cannot be held against them.

The usual is to expect them to know about the same that you do about the issue.