A new regular corporation may elect almost any tax year that is desired. Partnerships, S corporations, and personal service corporations have certain restrictions in this regard in order to coordinate the tax year of the business with that of the principal owners.
The tax law recognizes the calendar year, the fiscal year, and 52-53 week year. The calendar year is assumed if no alternative is elected and is required if the tax payer does not maintain an adequate set of accounting records. A fiscal year may end with any month, but it must end on the last day of the month. Many businesses prefer to account on the basis of 13 four week periods. These are more standard and more comparable than 12 months of varying lengths. The tax law accommodates this preference by what is known as a 52-53 week year, which ends near the end of any month selected. Through the automatic action of the calendar, four or five years of exactly 52 weeks are followed by a 53 week year in which the thirteen period has five weeks rather than four weeks. This is necessary in order for the end of the year to remain near the end of the same month and not move ever earlier in the year.
It is possible to change to a different tax year, although most changes require the approval of the IRS. Such a change will create a short period between the old and the new, and usually the income for the short period must be annualized for tax reporting purposes. A short period that is the last period for a taxpayer need not be annualized.