Bob Gauvreau explains how to choose a corporate year-end date, advising new incorporations have 368 days to elect a fiscal year-end and recommending deferring the first year-end as long as allowed to push tax liabilities later. He also gives strategic examples: align year-end with business cash-flow cycles (e.g., CPA firms avoid April; real-estate agents may prefer August/September after summer closings).
Questions this video answers
368 days
August 31 of the following year
December 31
Chapters
Okay, so the question is, how do we pick a corporate year end date? Now we do have some options. So really, when you get your business set up, really, which is incorporation, from the date that you incorporate, you have 368 days to choose a year end date. Now typically people choose December 31st in many circumstances because it aligns with the calendar year. But I would typically advocate for people to push their first year end date out as long as possible. So for example, if you get incorporated on August 30, I would argue that you should really defer your year end date to August 31st the following year. It pushes the tax liability, the reporting requirements out to the longest period possible versus incorporating August 30th and choosing December year end, which just means the costs and requirements to file are going to be sooner, your tax liability is going to be owed sooner. So we like to push it out as long as possible. So really, in the first year that you create your year end or your incorporation is formed, you get the opportunity to choose that year end. Choose it wisely. Some of it again is going to be on deferring, the other is going to be strategic. Now when I say strategic, what I mean is that we would choose a year end date that would maybe align with our fiscal patterns of behavior in our business. So for example, obviously a CPA firm, we do taxes. It probably wouldn't make sense for us to do our year end in April. However, May might not be a bad time of year because we've got the cash from all the extra work that we've done, we can pay our liabilities off. That's not a bad time to choose it. Some people have some summer focused businesses like real estate agents, for example. Real estate agents, I would highly recommend that they do their year end date in August or September so that when all of their summer closings, you're getting your deposits and your commission payouts, we can then pay our tax bill. That avoids us having to do it in March or April when commissions have been much lower. And all of a sudden a big surprise tax bill comes in and nobody is really excited about that. So just being strategic about the timing, choose carefully because it becomes really tough to change it once we've already established it. So that is how we choose a corporate year end date.
