There are many factors that go into deciding whether you should incorporate your dental practice. Deciding to start or buy your own dental practice is a big step - especially if you’re doing so in the middle of a global pandemic.
Each dental practice owner is uniquely positioned and incorporating may not be right for everyone. Read on to learn more about the advantages of incorporating your dental practice to find out whether it’s the right move for you of you’d be better off as a sole practitioner or partnership.
There are three main advantages to incorporating your dental practice.
· Asset Protection
· Tax Benefits
· Credit Shielding
Incorporating your dental practice means having limited liability and not having to worry about your personal assets being seized during most business-related lawsuits and liabilities. This does not protect you from any malpractice lawsuits, however.
An example of this would be if an employee of yours is driving on a company errand (i.e. you directed them to drive somewhere to drop off, pick up or meet with a client, for instance) and they ran over a pedestrian while being negligent. As a sole proprietor, your personal assets would be on the line, while incorporation means that your personal assets would be protected in this instance.
As a sole practitioner, you would be held personally liable for all general debts and liabilities of your dental practice, including any vendor contracts, real estate and property. If you own your own home, this means that your home could be seized from you along with any other property such as cars, personal bank accounts, etc.
Should you decide to incorporate your dental practice, there are several tax benefits that you’d be eligible for. Of course, these benefits may vary based on your own unique situation. In addition to some of these tax benefits (mostly geared towards health insurance), by incorporating your dental practice, you’re also drastically reducing the chances of being audited.
Disclaimer: For a comprehensive understanding of potential tax benefits, you should consult with your accountant.
One of the biggest benefits to incorporating your dental practice is that you’ll be able to shield any loans under the incorporation umbrella. Let me break that down a bit more here. When you incorporate, the business becomes a separate legal entity from its owners, which shields the owners from any personal liability for business debts and obligations. This means that when you buy a house, a car or other big purchase, the loans you've taken out for your business expenses won't show on your credit report.
Dental B-School has this advice to share with you “Buy your practice first and then buy your home. Don't do it the other way around. You can hide the loan for the practice inside the corporation, but there's no way to hide the loan for your home. This could result in the bank loaning you less money for your practice.”
Before signing your lease, before even sitting down to negotiate your lease, you should incorporate your dental practice if that’s the direction you have decided to go. Whether you decide to remain as a sole practitioner, a partnership or to incorporate your dental practice, look at the advantages and disadvantages of each and ensure your finances are in good shape.
Regardless of the path you choose, Dental B-School is here to help you as you continue through your journey. To learn more, check out our free resource section or contact us to schedule your strategy session.