[LazyPup]

The proper procedure is to lift the toilet and install the tile up close to the flange.

The Plumbing code prohibits the closet flange from being flush with or recessed below the finished floor. When ceramic tile is installed and it builds the floor up to or above the level of the flange you can install a "Flange Build up adapter" to raise the finshed level of the flange. (See attached illustration- click on the thumbnail to enlarge).

After the toilet is reset you should run a bead of caulking around the perimiter of the bowl base. When doing so leave a small section about 2" to3" long on the back of the bowl where it will not be seen. The purpose of leaving the small section without caulking is to permit water to seep out in the event the wax ring should fail, thus giving a visual indication of the wax ring problem.