Can an LLC Have a Fiscal Year End?

by Terry Masters

An owner of a limited liability company, called an LLC, must comply with standard bookkeeping and accounting practices to properly operate the business. These standards are a reflection, in large part, of the requirements of federal income tax law. One of the most basic accounting decisions the owner of an LLC must make is to set a fiscal year for the company. There is no legitimate way to operate a company without one.

Definition

A fiscal year is a 12-month period of time over which a company's revenue and expenses are evaluated. This time frame forms the basis of a company's accounting system, and it is used to generate financial statements, comparative ratios and to pay taxes. A company designates its fiscal year by indicating a year-end date. When a fiscal year is set to a calendar year, for example, the fiscal year ends on December 31.

Requirement

The United States Internal Revenue Code requires individuals and businesses to pay federal income taxes on the basis of a 12-month accounting period. This period is called a fiscal year. Businesses, including LLCs, must designate a fiscal year by providing a fiscal year-end date to the IRS. In short, not only can an LLC have a fiscal year end, it is required to have one by law.

Procedure

The IRS allows most types of companies to select a fiscal year that works with the way they do business. While many companies use a calendar year as their fiscal year, other companies elect to use a fiscal year that does not line up with the calendar. Instead of the fiscal year ending on December 31, for instance, a company can set it to end on June 30. This means the company's fiscal year runs from July 1 to June 30 of the following year. An LLC can select a fiscal year as its accounting period when it applies for an Employer Identification Number. This selection is not binding, however. The binding selection happens when the LLC files its first federal tax return and indicates a fiscal year-end on the front page.

Considerations

The selection of a fiscal year and the designation of a fiscal year-end date is important to the IRS because it tells the agency when the LLC is supposed to pay taxes. An LLC has a variety of federal tax obligations, and the IRS imposes stiff penalties for late filings. Although a fiscal year is set at the outset of establishing the LLC, it is not set in stone. The IRS allows companies to change their fiscal year if it is necessary for the operation of the business.

About the Author

Terry Masters has been writing for law firms, corporations and nonprofit organizations since 1995. Her online articles specialize in legal, business and finance topics. Masters holds a Juris Doctor from Howard University and a Bachelor of Science in business administration with a minor in finance from the University of Southern California.

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