Income Tax Purposes:
A year is a year, right? Yes and no. Most years are twelve months long (except for short year returns), but different types of businesses may use different types of "tax years" when it comes to figuring their taxable income. A tax year is an annual accounting period for keeping records and reporting income and expenses.
A calendar year runs from January 1 through December 31. One of the advantages of a calendar year to small business owners is that the payers of interest, dividends, and many other kinds of income send their reports to you on a calendar year basis, so it is easier to determine how much income you received for the year. Most sole proprietors use a calendar year accounting period.
Some businesses have "seasons" that don't follow the traditional calendar. If your business will have such seasons, you may be eligible to use a 12-month fiscal year that ends on the last day of any month except December. Whether you choose a calendar year or a fiscal year, you must choose it for your first tax return and use it for all your records and reporting. Usually, you must get Internal Revenue Service (IRS) approval to change your tax year once you have established it.
Payroll Taxes:
For Federal (IRS) and State (Employment Development Department - EDD) payroll taxes, you will file wage and tax reports quarterly and annually on a calendar-year basis. The IRS and EDD will send you the tax forms to complete at the close of each reporting period.
Sales and Use Taxes:
When you obtain your seller's permit, you will be instructed to file your return on a monthly, quarterly, or annual basis. The State Board of Equalization (BOE) will send you a tax return form to complete at the close of each reporting period.