incorporation still worth it?

[hjk]

Hi

I am a new grad working in Canada. I wanted to get some opinions on incorporating as a fresh graduate.

With the changes in law with income splitting and the associated cost with incorporating I was wondering if incorporation is worth it if I can make 18-20k / month

thanks!

[Bambi]

Ask your accountant.

[cleanup]

It all depends on how much money you need to live and what you expect to do with the money you save. Usually new grads have tuition credits that don't make it totally worth it for the first 6-12 months of practice or so, and then it starts looking more attractive. Ask your accountant.

[Crc]

.

[Ostracized]

It mostly depends on the differential between your gross income and your personal expenses.  If you’re making >$200,000 but you only need $75,000 to live on, then incorporation would be pretty good for you.  That $125k in retained earnings would be taxed at ~15% rather than ~50%, saving you around $40,000 per year in taxes.  The actual costs of incorporating are a pittance compared to that.

Granted it’s a bit more complicated than that and it requires a lot of thought and long term planning.  

 

 

[xylem29]

On 2/24/2019 at 1:47 PM, Ostracized said:

It mostly depends on the differential between your gross income and your personal expenses.  If you’re making >$200,000 but you only need $75,000 to live on, then incorporation would be pretty good for you.  That $125k in retained earnings would be taxed at ~15% rather than ~50%, saving you around $40,000 per year in taxes.  The actual costs of incorporating are a pittance compared to that.

Granted it’s a bit more complicated than that and it requires a lot of thought and long term planning.  

 

 

And what happens to these retained earnings? Can you do anything with them? Like what's the main reason for this other than the 15% tax rate? 

[cleanup]

1 hour ago, xylem29 said:

And what happens to these retained earnings? Can you do anything with them? Like what's the main reason for this other than the 15% tax rate? 

You can use it for corporate expenses, including buying a practice and paying for anything else related to your practice of dentistry (let's just say there's a reason why health professionals like taking CE while on vacation). You can also invest with it, but those investments are taxed very heavily and there's a lot of gray area around what can be done:

http://www.kellysantini.com/articles/professional-corporations-investment-restrictions-guidelines-and-options-delivering-healthy

To be frank, at the end of the day, the gist of it is "Do whatever you want, but when the CRA comes knocking, you better be able to justify it."

[Ostracized]

18 hours ago, xylem29 said:

And what happens to these retained earnings? Can you do anything with them? Like what's the main reason for this other than the 15% tax rate? 

Basically, you can use your Corp as a retirement fund, with semi-deferred taxation.  Not that different from an RRSP, but with an unlimited yearly contribution limit.  

So if you happen to have 6-figures of cash left over at the end of the year that you want to invest for the future, leaving it in your corp could save (actually defer) you tens of thousands of dollars in taxes compared to taking it all out and maxing your RRSP.  

But it only really makes sense if you know that you want to save a lot and spend a limited amount on living expenses.  It comes down to a personal lifestyle and financial plan.  It’s definitely less flexible than the alternative.  

Make sure you discuss this with a knowledgeable accountant who does a lot of professional corps.  

[kayshaunsmith1996]

any recommendations on good accountants?