Need Some Deductions for 2011?

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10 Oddball Tax Deductions

11 Most Overlooked Tax Deductions

Updated for 2011

Your Tax Year

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What is a 52-53-Week Year?

You can use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis.

Your 52-53-week tax year must always end on the same day of the week.

For example, if you elect a tax year that ends on the last Monday in March, then, whatever date the last Monday in March falls on each year will be the last date of your tax year.

So, if the last Monday in March of year 1 ends on the 15th, the 15th is the ending date of that tax year. If, in Year 2, the last Monday in March falls on the 16th, the 16th is the ending date of year 2.

How to Make an Election for a 52-53 Week Year

Attach a statement with the following information:

The month in which the new 52-53-week tax year The month in which the new 52-53-week tax year.
The day of the week on which the tax year always ends.
The date the tax year ends. It can be either of the following dates on which the chosen day:
1. Last occurs in the month in (1), above, or
2. Occurs nearest to the last day of the month in (1), above.

Choosing Fiscal Year

You may have a compelling business reason to use a fiscal year instead of a calendar year.

For example, say your revenue and expense patterns suggest that ending your tax year on June 30th (fiscal year-end) would make more sense than ending it on December 31st (calendar year-end).

You start your business July 1, 2011.
In your type of business, the biggest selling months are March, April, May, and June.
Therefore, you figure about 80% of your annual revenues can be expected during those four months in 2012.
However, during September, October, November, and December of 2011 you incur about 70% of the annual expenses to generate those 2012 revenues.

You decide to elect a fiscal year for reporting your taxes and keeping your books. Your fiscal year will run from July 1 to June 30th. (A calendar year would end December 31st.)

The results:

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, 2012 will reflect a more accurate presentation of net income.

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

Since this is 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.

Inventory Considerations

Something else to consider in the above example is inventory levels. Since most of your sales occur March through June, your inventory levels will be at their lowest point in June.

Less stuff to count means time and money saved taking a physical inventory at the end of your fiscal year.

Your Tax Year: What is a Short Tax Year?

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