What Is a Fiscal Year?

When it comes to money and whether or not monolithic corporations are making it, you probably see their yearly projections and summaries in the context of “fiscal years” or “fiscal quarters.” Which might make you think money years are just more special than like… Normal years or something. But fiscal years are still 12 months and everything, so why can’t they just use normal years and sync everything up? What is a fiscal year?

What’s it for?

Well the purpose of a fiscal year is pretty simple, which is nice (the year part might get you frustrated). But the “fiscal” part of the fiscal year. It’s just a means to keep track of accounting books and financial statements. When it comes to businesses it’s about measuring revenue between years so investors feel safer about where they’re putting their money. Kind of the same for governments too, since they have a budget and all. Businesses have to pay taxes, though, which is where the IRS comes in for Americans. That brings tax years into play. Those don’t actually have to line up with the calendar or fiscal year. 

Anyway the long short is that fiscal years are for companies, businesses, and the like to keep track of things. It’s for condensing everything when things have to be put into an annual report, which is a lot of business numbers that aren’t as interesting as fiscal years not being the same as calendar years.

When Do Fiscal Years Start?

This is where the shenanigans begin. Fiscal years can start and end whenever a business wants, technically. They just have to be 12 month periods, and are reported based on the last month in the year. If you’re dealing with the American IRS, fiscal years are defined as 12 consecutive months, ending on the last day of a given month except December. Were the last day to be December 31, then you’re just operating on the calendar year.

Anyway fiscal years are reported based on the last month and year. If a company’s fiscal year ends in June, then fiscal year 2020 would be reported as either “FY 2020” or as a fiscal year ending on June 30th, 2020. Sometimes American taxpayers (like corporations, not laypeople) can have their fiscal years end on the same day of the week every year, not on a specific date. That can be something like “the last Saturday of April.” What this ends up meaning is that sometimes the fiscal year can flex between 52 and 53 weeks, since you’re not operating on a specific date. 

When it comes to taxes, because those are intrinsically tied to the fiscal year, you’re probably used to paying your taxes around April 15th if you’re an American. Seems normal if you don’t have a fiscal year that isn’t the same as the calendar year. The way the IRS actually handles it though is by saying you pay your taxes on the 15th day of the fourth month. If you pay your taxes by the fiscal year you set, you’d file them in not-April. A fiscal year starting in, say, February would file taxes in May. 

How Are Fiscal Years Decided?

While you could pick total shenanigans for your fiscal year, there is a rhyme and reason to it. Retail sales is a pretty easy to conceptualize example. Sales operate on a cycle, and the peaks within retail specifically come between October and January. If retail were to operate on the calendar year, the big spike in sales would be broken between the end and beginning of the year. This is why fiscal years for retailers typically end on January 31st, to accurately capture the whole bulge in sales. Schools do this too, with their fiscal years lining up with the academic year as opposed to the calendar year. If you’re in school, you might even think of years in academic years anyway. This operates on the same logic.

We’ve been talking about America a lot, so you might be wondering how America’s fiscal year operates. The American government’s fiscal year starts on October 1st and ends the following September on the 30th. It used to line up with the calendar year, but was changed in 1976 to begin on October 1st. This was to give Congress members more time to pass a budget and include politicians who would be newly seated in January. 

Speaking of money, see if you know who is on yours here.