Calendar Year

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rjonesx
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Definition

Generally speaking, a calendar year begins on the New Year’s Day of the given calendar system and ends on the day before the following New Year’s Day, and thus consists of a whole number of days. A year can also be measured by starting on any other named day of the calendar, and ending on the day before this named day in the following year. This may be termed a “year’s time”, but not a “calendar year”. To reconcile the calendar year with the astronomical cycle certain years contain extra days.

Calendar Year

What is a ‘Calendar Year’

A calendar year is the one-year period that begins on January 1 and ends on December 31, based on the commonly used Gregorian calendar. For individual and corporate taxation purposes, the calendar year commonly coincides with the fiscal year, and therefore it generally comprises all of the year’s financial information used to calculate income tax payable.

Explaining ‘Calendar Year’

Most individuals and many companies use the calendar year as their fiscal year, or the one-year period on which their payable taxes are calculated. However, some companies choose to report their taxes based on a fiscal year, starting on April 1 and ending on March 31, to better conform to seasonality patterns or other accounting concerns applicable to their businesses.

Calendar Year vs. Fiscal Year

A calendar year is always January 1 to December 31. A fiscal year, by contrast, can start and end at any point during the year, as long as it comprises a full twelve months. A company that starts its fiscal year on January 1 and ends it on December 31 operates on a calendar year basis. The calendar year represents the most common fiscal year in the business world. Large companies including Alphabet Inc., the parent company of Google, Amazon.com and Facebook use the calendar year as their fiscal year. Other companies elect to maintain a fiscal year. Walmart and Target Corporation, for example, have fiscal years that do not coincide with the calendar year.

Advantages and Disadvantages of Calendar Year

Perhaps the biggest advantage of using the calendar year is simplicity. For sole proprietors and small businesses in particular, tax reporting is often easier when the business’s tax year matches up with that of the business owner. Moreover, while any sole proprietor or business may adopt the calendar year as its fiscal year, the Internal Revenue Service (IRS) imposes specific requirements on those businesses wanting to use a different fiscal year.

Further Reading

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