Many dentists are taking advantage of a tax strategy of converting the regular dividends from their corporations into a capital gain generating huge savings.
To illustrate, the capital gains tax on $200,000 of income from the corporation is about $22,500, compared to a tax of $54,400 on dividend income. A tax saving of nearly $32,000! If you double the income to $400,000, the dividend tax is $152,200, while the capital gains tax is $65,100. A saving of over $87,000! As you can see in the table, the more you take, the more you save.
Income tax
| Payout | Dividends | Capital gains | Savings |
| $ 200,000 | $ 54,400 | $ 22,500 | $ 31,900 |
| $ 300,000 | $ 103,300 | $ 42,300 | $ 61,000 |
| $ 400,000 | $ 152,200 | $ 65,100 | $ 87,100 |
| $ 500,000 | $ 201,100 | $ 90,400 | $ 110,700 |
| $ 600,000 | $ 250,000 | $117,200 | $ 132,800 |
You can make these tax savings even more significant when you have a “pure” dental corporation, which owns only the dental clinic assets but has no other investments. You can use the capital gains method of saving taxes for yourself, your spouse and adult children. Yes, you avoid the nasty TOSI (“Tax On Split Income”) rules by using the capital gains method, and the family member does not need to work in your practice to qualify.
As outlined below, splitting the capital gains with family results in even more significant savings.
Income tax
| Payout | Dentist Only | 1 Family Member | 2 Family Members |
| $ 400,000 | $ 65,100 | $ 45,000 | $ 38,100 |
| $ 500,000 | $ 90,400 | $ 63,300 | $ 50,612 |
| $ 600,000 | $ 117,200 | $ 84,600 | $ 67,500 |
Take advantage of the tax savings now before the government shuts the door.
