In my last post, I discussed which professions can incorporate in British Columbia.
But why would you want to incorporate your practice?
Because the other doctors or dentists in your clinic have incorporated, or the other lawyers in your office have their own professional corporations? Because your accountant / lawyer / investment advisor / golf buddy told you to?
I hate to admit it, but when dealing with my kids I’ve often pulled out my parents’ (and everyone else’s) standard saying:
“If your friend jumped off a cliff, would you do it too?”
And the infuriating response I usually get (in addition to my wife’s roll of her eyes) is:
“Maybe – it depends.”
But they’re right. You should understand why you are doing something before actually undertaking it.
There must be some good reasons why so many people are talking about incorporation – and there are.
Incorporation is a powerful tool for ensuring your financial wellbeing. A professional corporation can help you reduce income taxes and build wealth for retirement. It can help you start, buy or expand a practice more easily.
The primary benefits of using a professional corporation are income tax driven:
- Lower corporate income tax rates;
- Income tax deferral;
- Lower personal income taxes through income splitting;
- Tax free sale of shares; and
- Ability to use tax effective strategies only available to corporations.
Non-income tax benefits include creditor protection and limited liability.
Of course, every good thing has to have a catch. There are set-up and ongoing accounting and legal fees. Inserting a corporation into your financial structure is more complex and requires additional thought, time and administration.
But in the end, the potential benefits are far greater than the additional cost.
In my next posts, I will describe the advantages of incorporating in greater detail.