Adopting the 52-53 Week Fiscal Year
In contemporary Western society we are all familiar with the 12-month, 365-day year. This system, known as the Gregorian calendar, was established in 1582 by Pope Gregory XIII to coincide with Earth’s orbit around the Sun. However, while suitable for astronomical purposes, this system is not always best-suited to managing your company’s finances.
Instead, many companies are choosing to adopt a 52-53 week fiscal year. With this system, the fiscal year does not span from January 1 to December 31; instead it will end on the same day of the week within a month each year. This results in the fiscal year varying in length between 52 and 53 weeks.
In essence, the 52-53 week system breaks the fiscal year down into 4 and 5-week blocks, which are easily comparable and well-suited to most standard methods of data analysis. While the adoption of a 52-53-week fiscal year generally has little effect on taxes, it can have significant advantages for your business.
Companies that maintain weekly timesheets often encounter a challenge when the end of a week doesn’t coincide with the end of a month. A professional services firm, for example, that reports time charges incurred on a weekly basis, but maintains its books and records on a calendar month and invoices on that basis, has a mismatch in periods. This mismatch often results in the need to carry over billable time to the following month, resulting in both deferred billing and revenue recognition. Moreover, the different time periods make it difficult to maintain operating statistics on a regular and uniform basis, as the time periods are not consistent. The 52-53 week fiscal year closes this gap and synchronizes timekeeping, invoicing and reporting.
Why Choose a 52-53 Week Fiscal Year?
There are many reasons to opt for a 52-53 week fiscal year instead of using the standard 12-month calendar. The Gregorian calendar that we use for everyday life is ill-suited to data analysis. With a standard year, comparisons of monthly activity can be misleading, since from year to year, the number of weekends in a month can vary. Conversely, the 52-53 week year breaks evenly into easily comparable 4-week or 5-week blocks, which allows for more accurate and comprehensive analysis.
In addition, the structure of the 52-53 week year is far easier to manage from an accounting standpoint. Just as the metric system does for physical units of measurement, the 52-53 week year allows for larger units to be broken down evenly into smaller components. Thus, days build into weeks, which build into months, which build into quarters, which in turn build into years.
While the 52-53 week fiscal year can have substantial advantages for the management of your business, it can be structured to have very little effect on your external reporting methods. In fact, for a privately held company, it is possible to only make the transition internally, while still remaining on a Gregorian calendar for external communications.
Switching to a 52-53 Week Fiscal Year
For those who decide that a 52-53 week year would suit their needs, it is a relatively straightforward process to make the transition. However, the IRS does set some fairly specific regulations regarding how to structure your new fiscal year and how to inform them that the transition is taking place.
First and foremost, in order to even choose a 52-53 week year, the IRS dictates that your company must report its income and expenses on that basis. There are also certain companies for whom a calendar year is a required by a provision of the Internal Revenue Code. It is important to work with your tax advisor when making the election to switch to a 52-53 week system.
Your new 52-53 week year must always end on the same day of the week in a particular month. This can mean either whatever date this day of the week last occurs in a particular calendar month, or whatever date this same day of the week falls in that is closest to the end of a particular calendar month.
In order to make the transition to a 52-53 week fiscal year, the IRS requires that you file your tax return with a statement attached including the following information:
§ The month in which your new 52-53 week fiscal year is due to end
§ The day of the week on which you have elected to end your new 52-53 week year
§ The date this particular tax year ends. This date must fit the requirements dictated by the regulations stated above.
The 52-53 week fiscal year can carry considerable benefits for your company. The adoption of such a system can greatly simplify data analysis while having very little impact on external correspondence. In summary:
§ With 52-53 week system, the year ends on the same day of the week in a pre-determined month.
§ The 52-53 week fiscal year breaks down evenly into 4 or 5-week blocks, allowing for simple statistical analysis and easy comparisons from year to year.
§ If you opt for a 52-53 week fiscal year, you must alert the IRS through the submission of the required statement. Your year must end on your determined day of the week, either occurring last in the month or closest to the end of the month.
The transition to a 52-53 week fiscal year may be done simply and seamlessly. However, as there are a number of IRS regulations associated with making such a move, Los Angeles CEOs and CFOs may be interested in consulting with an outside expert such as a CFO services firm that can advise on how to make the transition, or even manage the shift on their behalf.
Publication 538; Internal Revenue Service
Tax Year; Gregory J. Cook; Cook & Co.; March 4, 2012
Benefitting from a fiscal tax year; Albert B. Ellentuck; The Tax Advisor; September 1, 2008