In: Accounting
Mark and John form Reid and Masselli, LLP, (R&M), a partnership specializing in tax services. Both Mark and John are calendar-year taxpayers. However, they would like for R&M to have a year-end of 4/30. Is this possible? Why or why not?
Normally all businesses are required to use calender year as their accounting year (apart from countries like INDIA where the accounting year is from 1st of April to 31st of March) , but for TAX purposes it need not be the calender year.
If your business's tax period ends on last day of any month other than december, it is said to have a 'fiscal year'.
In the stated question , Mark and John are calender year tax payers whereas they would like their LLP (R&M) to have 4/30 i.e, 30th of april as its fiscal year end. Which can be done but there comes a dilemma ,
That how can the partners of an LLP file tax returns to the authorities even before their LLP files its tax returns, to file their returns Mark an John need to have incomes calculated. For the parnters of LLP incomes is given as percentage of profits of the LLP as reumaration and in their profit sharing ratio as decided in the LLP agreement.
So in the interest of business Ethics, keeing tax year ending on 31st december for the partners and 30th april for their LLP buiness is not right. Beacuse no one can predict or estimate their business's profits or losses 4 months prior and file tax returns based on that. Even as per the Ethics Norms of IRS this wont legally backed in case of any miscalculation and payment of tax.