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Scenario $5$: It's All Relative $$ Related Party Transactions

Michael owns a small manufacturing business. He employs his son, David, and pays him a $$60,000$ salary.

Michael also sells a piece of equipment to David for $$10,000($the equipment's fair market value was $$18,000).$

Business Income $($excluding the above$)$: $$200,000$

Other Wages $($Michael$)$: $$30,000$

Interest and Dividend Income: $$1,500$

Itemized Deductions: $$30,000$

Allowable deduction for self$-$employment tax: $($Calculate based on business income$)$

Questions:

Analyze the potential IRS scrutiny of the salary paid to David.

Discuss any tax consequences of selling the equipment to David at a discount.

Calculate AGI, taxable income, and total tax liability.