• Incorporating your practice is one of most important decisions you will make.  Historically, dentists incorporated because of the generous retirement plans that were available to incorporated entities.  Today with the expansion of retirement plans, incorporated dentists and sole-proprietors have similar options and the disparity has been greatly reduced. 

• There are many important reasons why you should incorporate, two of which I highlight below:    

          The first reason is limited liability.  Incorporating your business does not protect you from claims of malpractice brought against you or one of your associates.  It can, however, protect you against malpractice claims brought against your partners by limiting your exposure to your corporation's assets. 

A corporations limited liability is not automatic and can be disregarded by the courts if certain corporate formalities are not followed.

          The second reason is tax savings.  A sole proprietor pays self-employment taxes on the profits of the business (approximately 15% on the first $100,000 of profits and roughly 3% of any profits in excess of $100,000).  An S corporation, however, pays Social Security and Medicare taxes equivalent to self-employment taxes on "wages" (approximately 15% on the first $100,000 of profits and roughly 3% of any profits in excess of $100,000).

For example, if a sole proprietor generates $100,000 in profits, the self-employment tax bill comes out to approximately $15,000 each year.  If this same dentist is treated as an S corporation, and the owner wage amount is set to $50,000, the self-employment tax bill comes out to  $7,500; a savings of $7,500 in employment taxes.

One very important point here is that the IRS is keenly aware of this tax savings so it is crucial that the "wage" you designated for yourself be within the normal average range of wages for a dentist in your area.

• Please contact us prior to incorporating your business.  Many of the benefits are tied to corporate formalities created by statutes that need to be followed.  We are here to help you get your practice off on the right foot.