Tax Planning Scenario: Analysis of Federal Tax on David's Income

This report provides a tax planning scenario focusing on the federal tax consequences for David, who is joining a non-profit organization with a $1.5 million salary. It details the federal tax implications, including income tax calculations, standard deductions, and the impact of the Federal Insurance Contributions Act (FICA) taxes. The report also touches upon the Johnson Amendment and its potential effects on non-profit organizations and executive compensation. It highlights that David's tax liability would be similar to those in profit-making organizations and discusses the potential benefits if the Johnson Amendment is repealed, opening new funding channels for non-profits, and potentially increasing executive pay.

Running Head: Tax Planning Scenario 1
Tax Planning Scenario

Tax Planning Scenario 2
Federal tax consequences for David at Improved Learning org:
David would be joining the non-profit organization of Improved Learning org for a salary
package of $1.5 million. He is concerned about his tax treatment and it is noted that his tax
liability would be at par with his counterparts working in the profit making organizations. So the
sort of entity he is working for would not be affecting his tax treatment (Taxmap.irs.gov, 2019).
As per the Federal tax regulations, the entire income of David worth $1.5 million are taxable as
the US authorities declared that an individual earning over $1 million carrying an effective tax
rate of 37.18%. The 1st $12,000 from the income would be exempted as standard deduction
making a taxable income of $1,488,000. So David has to incur an annual tax of - $1,488,000 x
37.18% = $557,700.
The tax incidence in this case would take consideration of the Federal Insurance Contributions
Act (FICA) taxes like the social security tax, Medicare and additional Medicare tax according to
Section 501(c)(3) of the Internal Revenue Code.
According to Section 501(c)(3), the non-profit organizations are not supposed to support or
promote any way a potential political candidate or receive any sort of benefit from them. It is

Tax Planning Scenario 3
known as Johnson Amendment which restricts a non-profit organization from openly supporting
a political candidate and the Trump administration is trying to repeal such laws. In such cases
supporting a particular political party would be plausible for the non-profit organizations like
Improved Learning org. it would apparently open up new funding channels for the non-profit
organizations and the same would be reflected in the pay package of the executives like David
(Holloway, 2012). So David is likely to be directly benefitted of the Johnson Amendment if the
same gets materialized opening up new sources of revenue for the non-profit organization and its
staff.

Tax Planning Scenario 4
Bibliography
Holloway, J. B. (2012). Leadership behavior and organizational climate: An empirical study in a
non-profit organization. Emerging Leadership Journeys, 9-35.
Taxmap.irs.gov. (2019, March 20). Publication 15-A - Employer's Supplemental Tax Guide
(Supplement to Circular E, Employer's Tax Guide, Publication 15) - 3. Employees of
Exempt Organizations. Retrieved from Taxmap.irs.gov:
https://taxmap.irs.gov/taxmap/pubs/p15a-002.htm