Student FAQs #5: Should I Incorporate? The Basics of Incorporation for Physicians

Today I am answering the most commonly asked Resident question! A lot of residents feel they have to incorporate right after graduating b/c they think it is the “next step” or “something all doctors do”. That is not always the case and I certainly didn’t!

This is a short video about the basics of incorporation: Pros/Cons and the key incorporation terminology to know so that you can get on the same page when talking to your accountant about it.

What other questions do you want me to answer next? Please post them in the comments below!

𝗖𝗵𝗲𝗰𝗸 𝗢𝘂𝘁 𝘁𝗵𝗲 𝗼𝘁𝗵𝗲𝗿 𝗙𝗔𝗤𝘀 𝗮𝘁:

[markk]

Wow, this was extremely helpful! I’m a new staff and was really struggling to even understand the basics. I hope you do a seminar on salary vs dividend etc!

[hmdsidd]

As an IMG coming back to practice in Canada, this is very helpful! Thank you

[DilshanPieris]

Can you continue the Dr. Steph example into retirement? I want to see what happens in each scenario when it comes time to pay tax later on when you’re in the lower tax bracket

[kamkamrouz]

Thanks Dr. Steph for the eye-opening tax hints. What if I'll be expensing all my earnings and there's nothing much left in the corporation to pay less taxes? Should I stay self-employed for now until I would be able to leave money in the account and then incorporate?

[labadee]

Thank you so much for this, Dr Steph. I was feeling pressured into incorporating right away after moving from Australia by my accountant. You’ve given me a lot of information to consider! Was using the OMA easy to incorporate? My accountant referred me to a lawyer who was charging $3k and as someone who had just started working after a very costly move overseas, I’m not sure I can justify that expense at this stage if I decide to incorporate.

[AdrianMutu]

Regarding the Small Business Deduction:

I may be wrong but I am guessing that a well-paid and frugal physician who takes out minimal salary from their corporation can start to amass considerable wealth in their corporation. At a certain point, doctors will need to determine what to do when their passive income exceeds 150k per year. Is there a standard way doctors handle this? This might be a topic for 5-10 years into practice for most...

[zh]

Thanks for the video! Quick question:

If you are paying the 12.2% initial Corp tax rate on earned income during working years, but then have to pay the full marginal tax rate when this is withdrawn in later lower income years, then it's really only advantageous if your marginal tax rate when you withdraw is atleast 12.2% lower than 53.5% right?

I appreciate that you also get to hold onto more money for investment purposes in your corp which will be advantageous from a compounding point of view. I always just wondered if you paid the full marginal tax rate when you withdrew or was it marginal tax rate - 12.2% (because you had already paid that 12.2% to get it into the corp)

Hope that makes sense and appreciate all the wisdom!