Dentists and other health professionals who incorporate their businesses find it easy to realize tax benefits by putting money back into the business. If you are setting up your practice in the dental field, you may have several other competing obligations and goals, such as paying off your student loan (as early as possible), buying a home, starting a family, and so on, that may warrant delaying the incorporation. At The St-Georges Group, we can help you consider the pros and cons of incorporating your practice.

If you are a dentist, incorporating carries the following benefits:

  • Lower tax rates than a sole proprietorship
  • Potential for capital gains tax exemption when you sell the practice
  • Reduced personal liability
  • Accumulated value in the business

After the process of incorporation is complete, your practice becomes a separate legal entity that owns your dental practice. You become a shareholder, employee, or director of a corporation instead of the owner of a sole proprietorship, and receive compensation via a salary, dividends, and bonuses.

Incorporate and Differ Up to 35% On Taxes

Are you ready to save money on your taxes? Then you should keep in mind that tax efficiencies are facilitated through incorporation (thanks to tax deferrals). Consider the following example.

Dental and medical corporations are taxed at around 12% of net earnings1. For businesses earning more than $500,000, the general corporate tax rate jumps to around 30%1. An unincorporated practice making the same earnings could cost you significantly more in personal taxes, which frequently attract marginal tax rates in the range of 50%

If you withdraw only the money you need to cover your expenses and keep the rest of the money in the business, you gain a tax deferral advantage. In fact, the more you retain in the corporation, the faster you can grow your wealth.

Protect Your Family and Assets by Incorporating

When you incorporate your dental practice, you are no longer personally accountable for the obligation and debts of the corporation. Each shareholder in the business has limited liability. The corporation is considered a separate legal entity with unique liabilities. This can protect you and your family from financial loss, should something go wrong in the business.

Typically, a creditor could lay claims against company assets without having rights to the assets of individual shareholders. However, this is a complicated matter that requires the expertise of a business advisor.

Save Over $200,000 When You Sell Your Business

When dentists and other health professionals sell their practices, they generate capital gains. Properly planned sales can result in the use of the lifetime capital gains exemption (LCGE) significantly reducing taxes owed upon the sale. Additionally, proceeds from selling the business can provide retirement funds or allow you to invest in another business.

The LCGE is $913,630 for 2022. Only half of what you gain from the sale counts toward taxable capital gains. So, the deduction limit is $456,815. If you sell your practice for $1,000,000, your taxable capital gain will be about $500,000. With the LCGE, you can deduct up to $456,815 leaving $43,185 of taxable income, compared to $500,000. Tax savings would be approximately $200,000.

If the Numbers Line Up: Incorporate Today

For most dentists and other medical professionals, our strategic wealth advisors usually end up recommending the incorporation of the practice as one of the first wealth management strategies. This opens the possibility for very creative and impactful tax planning, and the use of strategies that would otherwise remain unavailable. Let us show you how your business incorporation lays the foundation for a tax-effective exit strategy when you’re ready to retire.

At The St-Georges Group, we take an integrated approach to wealth management by offering services such as financial planning, tax planning, insurance planning and more. We take the time to get to know you and understand your goals and dreams so that we can provide you with the strategies that are right for you. Request your 30-minute free consultation with one of our advisors today.

1. This will vary based on your province of residence and size of your practice.

Darren-St-Georges, team of Strategic Wealth Advisors of The St-Georges Group

About the Author

Darren St-Georges is a Senior Wealth Advisor at Assante with over 15 years of experience in wealth management in Montreal. Assisted by a team of strategic wealth advisors, he has helped numerous clients, such as dentists, healthcare professionals and business owners, simplify complex financial issues and achieve their financial goals through proven wealth management strategies. Leveraging integrated wealth planning, Darren’s mission is to use his experience and skills to bring financial peace of mind to his clients. Contact Darren for expert wealth management advice.

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