Whether your nonprofit is in the beginning stages preparing to launch or a well-seasoned association, there are a few things you may want to consider when deciding if a calendar year-end or a fiscal year-end is the best fit for your organization.
Calendar year and fiscal year are the two methods that the IRS allows nonprofits to file with. A calendar tax year is 12 consecutive months beginning January 1st and ending December 31. A Fiscal tax year is 12 consecutive months ending on the last day of any month except December. A 52-53-week tax year is a fiscal tax year that varies from 52-53 weeks but does not have to end on the last day of a month
WHY WOULD A NONPROFIT ORGANIZATION WANT TO ADOPT AN ALTERNATIVE FISCAL YEAR?
Depending on the revenue cycle of your organization, a calendar year could create blind spots in budgeting. If your organization were to receive a hefty amount of revenue between October and December, a calendar year offers minimal flexibility or opportunity to strategize.
Distinguished nonprofits as well as those new to the industry should take into consideration their programming for the year as well. The fiscal year chosen should match with the programming activities for the year so that they do not fall between two fiscal years. An association that holds a majority of its events in the summer months should perhaps re-consider choosing the traditional fiscal year-end of June 30th.
Other considerations your nonprofit should take into account when deciding on a fiscal year-end are:
- Grant Cycles
- Primary Funder’s Fiscal Year
- Audit Evidence
- Debt Covenants
- Impact on Audit Period and Presentation in Year of Change
- State Charitable Registrations
- Application for Combined Giving Campaigns
TIMING YOUR CHANGE
If a nonprofit wishes to change its fiscal year, it is required to file IRS Form 1128. This form must be filed by the 15th day of the 5th month ensuing the close of the new fiscal year according to the Cullinane Law Group. If your nonprofit is interested in filing to change your year-end you can download Form 1128 with full instructions on how to do so here.
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