Is Incorporation Right for You?
If you are thinking of incorporating your medical practice there are certain questions you should be asking yourself:
- Do I earn more each year than my current spending needs?
- Do I have immediate family members that are in a lower tax bracket than myself?
- Do I have insurance policies?
- Do I have any leases or business loans?
If you answered “yes” to any of the above questions there are certainly potential benefits to incorporating a Medical Professional Corporation (MPC).
The four main benefits of incorporation are:
1. The ability to defer taxes on your professional income
The Corporate tax rate on business profits can be considerably less than that of personal income. In Ontario Corporate tax on the first $500,000 of active business income is 15.5%, whereas personal income over $220,000 will be taxed at 49.53%. A corporation can create a significant tax deferral on a yearly basis if you are earning more income than your current spending needs.
2. The ability to have a spouse, children or parents shareholders of the MPC
This structure can provide substantial tax savings as you have the ability to split income to individuals in lower tax brackets. The ability to pay dividends to a family member compared to a salary is a much more desirable option since you do not have to justify the payment. A salary must be reasonable for the type of work the individual is performing, while a dividend is paid as a result of being a shareholder. One word of caution is that dividends can only be paid to children who are 18 or over to utilize the tax savings.
3. The ability to have the MPC pay for certain insurance expenses
This allows the policy to be paid with pre-tax income instead of personal after-tax income, which reduces the amount of cash you need from the MPC and therefore reduces your overall taxes. In certain situations the MPC can also setup a Health and Wellness account that allows personal medical expense deducted in the company.
4. The ability to have limited liability attached to your MPC
The MPC would not protect you against professional negligence however it would provide you with creditor proof from leases and non-personal guaranteed
business loans. Another benefit would be the ability to pay the business loans back more efficiently using corporate funds. There are several other advantages to incorporating a MPC that may be utilized differently depending on your situation.
If you have any questions about incorporation and how it can positively impact your business please contact me.
This is the first in a series of articles on Incorporating an MPC by our guest writer, Darren Salmond.
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Tax Deadlines for Medicine Professional Corporations