Your mechanical engineering firm likely uses the fundamentals of math and physics when designing the mechanical devices society uses every day. Like most businesses, your firm has accounting and bookkeeping needs. If these are not handled accurately, you could face financial challenges or even problems with the law.
The Difference Between Accounting & Bookkeeping
When some engineers open their first small to medium-size engineering firm, they may think that accounting for mechanical engineering firms and bookkeeping for mechanical engineering firms are the same thing.
Although you may hear these terms used interchangeably, there is a difference. You need both bookkeeping and accounting to keep your mechanical engineering firm running.
CPAs for mechanical engineering firms are responsible for recording your company's transactions. This can be done in your general ledger, or you can do it using software like QuickBooks Online. The physical book or the software program will store all of your company's financial transactions..
Accounting is a little different. CPA for mechanical engineering firms focus on analyzing the information that is stored in your ledger or in your accounting software. This information is used to develop insights about your mechanical engineering firm and help you make smart business decisions.
What You Need To Know About Tax Planning For Your Mechanical Engineering Firm
Smart tax planning for mechanical engineering firms can lower the amount of taxes your business owes. For example, your business structure will impact how you are taxed. For instance, you could choose:
- Sole Proprietorship- This legal structure has no corporate tax obligation, but it has Social Security and Medicare tax obligations.
- C Corporation- This legal structure requires the payment of corporate taxes and secondary taxes paid by owners on distributions that come in the form of dividends. There is a corporate tax obligation, but there are not Social Security and Medicare tax obligations.
- S-Corporation- Income/loss is reported by the owner. There is no corporate tax obligation and no Social Security and Medicare tax obligations.
Accounting for mechanical engineering firms includes recording all allowable deductions. These could include things like marketing, insurance, entertainment, and travel expenses. Recent changes in the tax laws may affect what your mechanical engineering firm can and cannot deduct.
Bookkeeping for mechanical engineering firms can help a firm accurately record deductible expenses. For example, entertainment expenses will need to expound upon who was there and what business was discussed. Company vehicles will need a mileage log that distinguishes business travel from non-business travel.
Selecting The Best Accounting Method For Your Firm
There are two methods of accounting, the cash-based method, and the accrual-based method. The cash-based process is simple. The record of revenue is made when you receive it. You record payments when they are made. This method is the best for small businesses that do not have inventory.
Some electrical engineering firms prefer the accrual-based accounting method. This is where expenses are accounted for when the bill is received, and income is accounted for when the invoice is generated. This can be an easier way of accounting, especially if your firm may need to wait months before you receive payment from your clients.
Choosing The Best Financial Solutions For Your Firm
Here at Fusion CPA, our seasoned financial advisers can advise you of which methods are best for your unique business needs. We can also audit your firm's accounts and make suggestions on changes you can make to improve your bookkeeping, tax planning, and planning for your firm's financial future. We also offer CFO advisory to help you create a financial road map for strategic reinvesting, contract negotiations and more. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive