A tax year is a consecutive 12-month period during which a taxpayer calculates their taxable earnings. It is commonly used by governments as a basis for managing earning and expenses in order to determine the taxes owed. The tax year can differ worldwide, depending on each country’s taxation laws. For example, in the United States, the tax year for individual taxpayers often follows the calendar year, running from January 1 to December 31. However, for businesses, they can choose their financial year so their tax year doesn’t have to align with the calendar year.
1. Can the tax year be changed?
Yes, a business can change its tax year by obtaining approval from the IRS. However, individuals typically can’t change their tax year which is based on the calendar year.
2. How does the tax year work for self-employed individuals?
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Self-employed individuals generally use the calendar tax year. They report income earned and expenses incurred during the calendar year on their tax returns.
3. What is a fiscal year?
A fiscal year is a consecutive twelve-month period that a company or organization uses for accounting purposes and preparing financial statements. It doesn’t necessarily coincide with the calendar year, and can vary between businesses.
4. What is an assessment year in terms of tax?
An assessment year is the year following the tax year or financial year. It is the span of time in which you review the previous year’s income and taxes paid and file your tax return for that.
5. What happens if taxes aren’t filed within the tax year?
If a taxpayer does not file their taxes within the defined tax year, they may face penalties or interest charges on any taxes owed. However, tax authorities usually provide a filing extension for people who need more time to prepare their tax returns.