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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10891
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I'm formed an LLC and I am completing Form 2553. Our their

Customer Question

I'm formed an LLC and I am completing Form 2553. Our their implacations to using a different fiscal year ( not a calendar year) for my LLC than my calendar tax year as sole shareholder.
JA: Thanks. Can you give me any more details about your issue?
Customer: If I have my LLC tax year begin 4/1/2016 and my personal tax year to follow the calendar year beginning 1/1/2016--what are the implications?
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Submitted: 11 months ago.
Category: Tax
Expert:  Lane replied 11 months ago.

Hi, I can help here.

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First, there are some requirements around using the calendar year (which, unless you're a seasonal business and are trying to match up income and expenses in the same tax year) which I typically recommend anyway

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You must use a calendar year if:

  • You keep no books.
  • You have no annual accounting period.
  • Your present tax year does not qualify as a fiscal year.
  • A provision in the Internal Revenue Code or income tax regulations require you to use a calendar year

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However, you CAN make a 444 election, which is what you're doing on the 2553 when you choose Fiscal Year

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Here's what section 444(1) says:

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"If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is:

  • The number of months from the end of the new tax year to the end of the required tax year.

The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of:

  • Three months, or
  • The deferral period of the tax year being changed."

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SO, as an example, lets say say you go into business August 2016 as an S corporation. The required year for an S corporation is a calendar year (twelve months ended December 31). You decide to make a Section 444 election to use a fiscal year with the fiscal year ending September 30. The deferral period is three months (October 1 through December 31).

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Taxes for the three months Oct, Nov, and Dec. of 2016 will be applicable to fiscal year ended September 30, 2017.

Expert:  Lane replied 11 months ago.

I honestly wouldn't go to the trouble unless there's a compelling business purpose,

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One reason might be that you receive the bulk of income in a certain time of the year BUT your expenses tend to fall into another part of the year.

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Choosing a fiscal Year might match up the income and expenses for the tax year better ... if your business was, say a seasonal business where 80% of revenues are generated during March, April, May, and June while 70% of the expenses to produce those revenues are incurred September, October, November, and December of the prior year, it makes sense to elect a fiscal year for tax-reporting and financial reporting.

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By choosing a fiscal year ending June 30, , revenues expenses will be more precisely matched within the 12-month period. As a result, the income statement prepared as of June 30, 2014 will reflect a more accurate presentation of net income.

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If you'd chosen a calendar year, and closed your books on December 31st, this would have resulted in a matching of only 20% of annual revenues earned through December 31st with 70% of annual expenses incurred through December 31st.

Expert:  Lane replied 11 months ago.
Expert:  Lane replied 11 months ago.

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I hope this has helped.

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Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd really appreciate a positive rating (using the rating request, faces, or stars on your screen)

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That’s the only way JustAnswer will credit us for the work here.

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Thank you!

Lane

I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

Customer: replied 11 months ago.
Thank you! Very thorough and helpful answer.
Expert:  Lane replied 11 months ago.

You're very welcome ... Your positive rating … (by using those the stars or rating request on your screen) …is thanks enough!

That’s how we’re credited for the work here

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Thank you!

Lane