Law Dictionary

taxable year

noun
Updated on: 26 Jul 2017

Legal Definition of taxable year

  1. :  a period of time used as the basis of tax computation that is usually the annual accounting period of a calendar year or fiscal year —called also tax year


Financial Definition of TAXABLE YEAR

taxable year

What It Is

A tax year is the year for which a tax is calculated and paid.

How It Works

The United States has a January to December tax year for individual taxpayers. Let's say John files his tax return on April 15, 2012. This tax return is actually for the 2011 tax year, which runs from January 1, 2011, to December 31, 2011. According to the IRS, an individual taxpayer must adopt the calendar year as the tax year if he/she does not keep "books or records" or some other approved annual accounting period.

Companies don't have to adhere to a January to December tax year. Many use a different 12-month cycle. This is particularly useful if the company's fiscal year does not run from January to December.

Why It Matters

Knowing when a tax year begins and ends is crucial to effective tax planning. For example, individuals often try to make last-minute charitable donations, IRA contributions or stock sales in December in order to get as many tax deductions as possible before a tax year ends.


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