To incorporate or not to incorporate? What do we prescribe?

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“We are often asked by physicians if they should incorporate,” says Hugh Faloon, partner and lead of GGFL’s Health Professionals practice. “My answer is always: Let’s chat about it and we’ll find out.”  There are many factors to consider, and incorporation isn’t the right move for everyone. But for those who should incorporate, timing is everything.

“Some clients come to GGFL who should never have incorporated, others who should have incorporated, and many who had incorporated but were not benefitting financially from the corporation,” adds Hugh.

Hugh recalls one unfortunate case, where a client was wasting thousands of dollars by not getting annual financial planning for his medical professional corporation and family. “We sat down and reviewed both his professional and family finances. We were able to approach things differently and get his financial life on a much better track,” says Hugh.

As an incorporated medical practice, the team at GGFL recommended that the doctor make his family members shareholders of the company. We then ensured that the appropriate dividends were being paid to our client’s spouse, children, and parents.

The physician’s children are approaching university age, so another recommendation was to have the medical corporation fund their education at no additional tax cost to the family. This is an incredible saving when you compare it to the physician paying the fees directly from the salary he draws from his company. “There is approximately a 40% tax cost for every extra dollar the doctor takes out of the company vs. paying the dividend to the child,” says Hugh. “Those wasted tax dollars add up quickly.”

Proper tax planning for the family also means less money has to be taken out of the corporation to meet other family needs. More money left in the corporation will quickly add up over the years to help fund the doctor’s retirement.

“Being in business for so long has allowed us to see medical residents become doctors, open medical corporations, become mortgage-free homeowners, fund their children’s education, and build up $millions of investments for retirement,” explains Hugh. “Each case has its unique challenges, but that’s what makes our job helping them fun.”

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