|
Starting Your BusinessAccounting Periods and MethodsYou must figure taxable income and file a tax return on the basis of an annual accounting period called a "tax year". Also, you must consistently use an accounting method that clearly shows your income and expenses for the tax year. Your "tax year" is the annual accounting period you use to keep records and report income and expenses on your income tax return. You can use one of the following tax years. Unless you have a required tax year, you adopt a tax year when you file your first income tax return. A required tax year is a tax year required under the Internal Revenue Code and the Income Tax Regulations. You have not adopted a tax year if you merely did any of the following:
Changes in Accounting Periods. Generally, you must file Form 1128 to request IRS approval to change your tax year. See the Instructions for Form 1128 for exceptions. If you qualify for an automatic approval request, a user fee is not required. File Form 1128 by the due date (including extensions) for filing the tax return for the short period required to affect such change. (The short period begins on the first day after the end of your present tax year and ends on the day before the first day of your new tax year.) If you do not qualify for automatic approval, a ruling must be requested. See the instructions for Form 1128 for information about user fees if you are requesting a ruling. File a current Form 1128 with the IRS national office no earlier than the day following the end of the short period and no later than the due date (not including extensions) of the tax return for the short period. Change in Accounting Method. You can generally choose any permitted accounting method when you file your first tax return. You do not need IRS approval to choose the method. It must be used consistently from year to year and clearly show your income. A change in your accounting method includes a change not only in your overall system of accounting but also in the treatment of any material item. Although an accounting method can exist without treating an item the same all the time, an accounting method is not established for an item, in most cases, unless the item is treated the same every time. For more information, see Form 3115, Application for a Change in Accounting Method. Important References: Form
3115 Application for a Change in Accounting Method |