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Home -> Business
-> Choosing a year-end date for a self-employed individual
Self-Employed Individuals - Choosing a
Year-end When Starting Your Business
You can choose a
year-end after
December 31, so that you can defer tax on your first fiscal year until the
calendar year in which the first year-end occurs. However, you will still
have to pay tax based on a December 31 year-end once your first fiscal year is
completed. Thus, you would be paying tax on more than 12 months of
income when you first pay tax on your self-employment income.
For example, if you choose a
June 30 year-end for your self-employment business which started on July 1,
2021, you would not have to report income from this business on your 2021 tax
return. You would have to elect on form T1139 (link below) to have a June 30
year-end. On your 2022 tax return you would report the income for your
fiscal year ending June 30, 2022. Then you would have to add an amount
for estimated earnings for July 1 to December 31, 2022. You would thus
be paying tax on 18 months of income, which may put you in a much higher
tax bracket.
You can later convert to
a December 31 year-end, so you could then eliminate the calculation of the
estimated amount, and use your actual earnings instead. This is done by
cancelling your prior election, again on form T1139. You would complete
Part 5 of the form, to change back to a fiscal period ending on December
31. Once you have cancelled the election, you cannot change your fiscal
year-end again.
If you will have a loss from
self-employment for the first 6 months in the example above, it would be better
to use a December 31st year-end in order to offset the loss against other income
in that year.
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