IRS penalties for failure to file or pay taxes are onerous. Here’s what you must do.
What is current year tax?
Current year tax is the amount of tax payable that tax year. The span of time that comprises a tax year depends on the accounting method used, but with some exceptions all current year tax spans 52 or 53 weeks.
Current year tax amounts are computed each tax year. A tax year is a yearly accounting period during which companies or individuals keep records and make reports regarding income and expenses for the whole year. Taxes must be paid on income earned during the tax year the business indicated to the Internal Revenue Service (IRS).
The current year tax payable depends on two categories of tax years: the calendar year and the fiscal year. The calendar year refers to 12 consecutive months that begin on Jan. 1 and end on Dec. 31.
The fiscal year refers to 12 consecutive months that end on the final day of any month except December. The fiscal year may also follow a 52-53-week schedule, meaning that it runs for 52 to 53 weeks and can begin and end on any day of the month. Unless the taxpayer has a stipulated tax year, she may adopt one by filing the income tax return using that tax year.
If the current year lasts for less than 12 months, it is referred to as a short tax year. A taxable entity may be required to file a short-year tax return when the entity is converting its accounting period or wasn’t in existence for an entire tax year. The conditions that apply to figuring and filing the tax are the same as those that apply in computing the full current year tax.
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Current year tax example
Robert’s business earned $500,000 in taxable income. As registered with the IRS, Robert’s business adopted a fiscal-year schedule, choosing the dates June 15 one year to June 15 the following year. The $500,000 is recorded within that date range, so the business pays its full tax burden.