Please complete the 2017 federal income tax return for Stanand Melissa Smith. Ignore the requirement to attach the form(s) W 2 to the front page of the Form 1040. If required information is missing, use reasonable assumptions to fill in the gaps. Use the IRS website to find 1040 and Schedule A.

Stan (age 43) and Melissa (age 43) Smith are married and live in Lexington, Kentucky. The Smiths have two children Jared, age 15, and Alese, age 12. The Smiths would like to file a joint tax return for the year.

The following information relates to the Smiths tax year:

Stans Social Security number is 987-45-1234

Melissas Social Security number is 494-37-4893

Jareds Social Security number is 412-32-5690

Aleses Social Security number is 412-32-6940

The Smiths mailing address is 95 Hickory Road, Lexington, Kentucky 40502.

Jared and Alese are tax dependents for federal tax purposes

Stan Smiths Forms W-2 provided the following wages and withholding for the year:

Employer	Gross Wages	Federal Income Tax	State Income Tax
		Withholding	Withholding
National Storage	$66,200	$8,000	$3,750
Lexington Little League	$2,710	0	0

Melissa Smiths Form W-2 provided the following wages and withholding for the year:

Employer	Gross Wages	Federal Income Tax	State Income Tax
		Withholding	Withholding
Jensen Photography	$24,500	$2,450	$1,225

All applicable and appropriate payroll taxes were withheld by the Smiths respective employers. All the Smith family was covered by minimum essential health insurance during each month in 2017. The insurance was provided by Stans primary employer, National Storage.

The Smiths also received the following during the year:
Interest income from First Kentucky Bank	$130
Interest income from City of Lexington, KY Bond	$450
Interest income from U.S. Treasury Bond	$675
Interest income from Nevada State School Board Bond	$150
Workers compensation payments to Stan	$4,350
Disability payments received by Stan due to injury	$3,50

2 National Storage paid 100% of the premiums on the policy and included the premium payments in Stans taxable wages

Melissa received the following payments due to a lawsuit she filed for damages sustained in a car accident:

Medical Expenses for physical injuries		$2,500
	Emotional Distress (from having been physically injured)	$12,000
	Punitive Damages	$10,000
	Total	$24,500

Eight years ago, Melissa purchased an annuity contract for $88,000. She received her first annuity payment on January 1, 2017. The annuity will pay Melissa $15,000 per year for ten years (beginning with this year). The $15,000 payment was reported to Melissa on Form 1099-R for the current year (box 7 contained an entry of 7 on the form).

The Smiths did not own, control or manage any foreign bank accounts nor were they grantors or beneficiaries of a foreign trust during the tax year.

The Smiths paid or incurred the following expenses during the year:
Dentist/Orthodontist (unreimbursed by insurance)	$	10,500
Doctor fees (unreimbursed by insurance)	$	625
Prescriptions (unreimbursed by insurance)	$	380
KY state tax payment made on 4/15/17 for 2016 tax return liability	$	1,350
Real property taxes on residence	$	2,400
Vehicle registration fee based upon age of vehicle	$	250
Mortgage interest on principal residence	$	8,560
Interest paid on borrowed money to purchase the City of
Lexington, KY municipal bonds	$	400
Interest paid on borrowed money to purchase
U.S. Treasury bonds	$	240
Contribution to the Red Cross	$	1,000
Contribution to Senator Rick Hartleys Re-election Campaign	$	2,500
Contribution to First Baptist Church of Kentucky	$	6,000

In addition, Stan drove 6,750 miles commuting to work and Melissa drove 8,230 miles commuting to work. The Smiths have represented to you that they maintained careful logs to support their respective mileage.

The Smiths drove 465 miles in total to receive medical treatment at a hospital in April.

The Smiths both want to contribute to the Presidential Election Campaign Fund. The Smiths would like to receive a refund (if any) of any tax they may have overpaid for the year. Their preferred method of receiving the refund is by check.

7-step process to combine capital gains and losses:

Step 1: Combine all short-term capital gains and losses, including any short-term capital loss carried forward from the prior year.

Step 2: Separate long-term capital gains and losses into separate groups (28%, 25%, and 0/15/20%) and combine gains and losses in each group. Place any net long-term capital loss carried over from the prior year into the 28% rate group.

Step 3:

If no LT gains in step 2, add your LT losses and proceed to step 4

If no LT losses in step 2, proceed to step 6

Combining net gains and losses in LT rate groups:

If step 2 is losses in 28% and 0/15/20%, combine the net losses and apply them to offset gains in 25%. If losses exceed gain, this result is a LTCL; proceed to step 4. If gain exceeds the losses, this result is a LTCG; proceed to step 6.

If step 2 includes a net loss in 28% and net gains in the other groups, apply the net loss from the 28% group to the gain in the 25% group first. If any 28% loss remains, offset the 0/15/20% group. If losses exceed gains, this is a LTCL; proceed to step 4. If gain remains, this is a LTCG; proceed to step 6.

If step 2 includes a net loss in the 0/15/20% group and net gains in the 28% and/or 25% rate groups, apply the loss from the 0/15/20% group to the net gain in the 28% group first. If any 0/15/20% loss remains, offset the 25% group. If losses exceed gains, this is a LTCL; proceed to step 4. If gain remains, this is a LTCG; proceed to step 6.

Step 4: If no STCG or STCL in step 1, the netting process is complete; apply the capital loss deduction limitations and ignore the remaining steps. If step 1 results in STCL and step 3 results in LTCL (i.e. both losses), the netting process is complete. Otherwise, continue to step 5

Step 5: If step 1 produces a STCG and step 3 produces a LTCL, sum the net STCG and the LTCL

If the outcome is a net loss, the netting process is complete. Apply the net capital loss deduction limitations.

If the outcome is a net gain, the net gain is treated the same as a net STCG and is taxed at ordinary rates. The netting process is complete.

Step 6: If no STCG or STCL from step 1, the netting process is complete. The tax on the LTCG remaining in each LT group is determined based on the rate rules. If step 1 outcome is STCG, skip to step 7. If the step 1 outcome is a net STCL and step 3 results in a net gain in any (or all) of the LT rate groups, first use the STCL to offset the gain in the 28% rate group (if any), then the gain in the 25% rate group (if any), and finally the gain in 0/15/20% rate group (if any).

If the net STCL exceeds all gains in the LT rate groups, the netting process is complete. Apply the net capital loss deduction limitations.

If the net STCL does not offset all the gain in any of the LT rate groups, the netting process is complete. The result is a net capital gain. The tax on the gain remaining in each LT group is determined based on the rate rules.

Step 7: if step 1 produces a net STCG and step 3 produces a net LTCG, the netting process is complete. The tax on the remaining gains is determined using the rate rules.

Rate Rules

If the LTCGs would have been taxed at a rate of 39.6% if they were ordinary income, the gain is taxed at the maximum rate for their group (0/15/20%, 25%, or 28%).

To the extent the LTCG would have been taxed at a rate of 15% or lower if they were ordinary income, the 0/15/20% gains are taxed at 0%, and the 25% and 28% gains are taxed at the taxpayers ordinary rate.

For other situation, use the following steps:

Step 1: fill up the 10, 15, 25, 28, 35, and 39.6% tax rate brackets with taxable income, exclusive of LTCG subject to preferential rates.

Step 2: if there is any remaining space in the 10 or 15% brackets, add any 25% rate capital gains to these brackets to the extent room remains in either of these brackets after step 1. 25% rate capital gains included in these brackets are taxed at the ordinary rates applicable to these brackets.

Step 3: If there is any remaining space in the 10 or 15% brackets, add any 28% rate capital gains to these brackets to the extent room remains in either of these brackets after step 2. 28% rate capital gains included in these brackets are taxed at the ordinary rates applicable to these brackets.

Step 4: Add any 0/15/20% rate capital gains to either the 10% or 15% brackets to the extent room remains in either of these brackets after step 3. Any 0/15/20% rate capital gains included in these brackets are taxed at 0%.

Step 5: Add any remaining 0/15/20% rate capital gains (those not taxed in Step 4) to the other tax brackets. The 0/15/20% rate capital gains included in brackets below 39.6% are taxed at 15%. The 0/15/20% rate capital gains included in the 39.6% bracket are taxed at 20%.

Step 6: Any remaining 25% rate capital gains (those not taxed in step 2) are taxed at 25%. Any remaining 28% rate capital gains are taxed at 28%. (This means that 28% rate capital gains that would have been taxed at 25% if they were ordinary income are taxed at the higher 28% rate).

Department of the Treasury-Internal Revernue Service U.S. Individual Income Tax Return OMB No, 1545-0074 IRS Use Only-Do not write or staple in this space. For the year Jan. 1-Dec.31.2017, or other tax year beginning Your first name and initial 20 Your social security number If a joint retum, spouse's first name and initial name Spouse's social security number Home address (number and street). If you have a P.o. box, see instructions. Make sure the SSN(s) above and on line 6c are correct. City, town or post office, state, and ZIP coda. If you have a foreign address, also complete spaces below (see instructions) Chock horo if yau, or your spouse filing jcintly, want $3 to go to this fund. Checking bak below will nat change your tax or oreign Foreign postal co0a Filing Status Single Check only one 3 Married filing separately. Enter spouse's SSN above Head of household (wah qualifying person) (See instructions.) If the qualifying person is a child but not your dependent, enter this 2 Married filing jointly (even if only one had income) and full name here. 5 Qualifying widow(er) (see instructions) 6a Yourself. If someone can claim you as a dependent, do not check box 6a on 6a and 6b (3) Dependents (4)if child under age 17 oualifying far child tax credt lived with you . did not live with you due to divorce name Add numbers orn d 7 8a Total number of exemptions claimed Wages, salaries, tips, etc. Attach Form(s) W-2 Taxable interest. Attach Schedule B if required Income b Tax-exempt interest. Do not include on line 8a . 9a Ordinary dividends. Attach Schedule B if required W-2 here. Also 10 Taxable refunds, credits, or offsets of state and local income taxes 12 Business income or (loss). Attach Schedule C or C-EZ 13 Capital gain or (loss). Attach Schedule D if required. If not required, check here 13 14 Other gains or (losses). Attach Form 4797.. .. 15a IRA distributions 16a Pensions and annuities 16a 17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17 18 Farm income or (loss). Attach Schedule F. 20a 21 22 Social security benefits 20a Other income. List type and amount Combine the amounts in the far right column for lines 7 through 21. This is your total income Adjusted Gross Income 24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ 24 25 Health savings account deduction. Attach Form 8889 26 Moving expenses. Attach Form 3903 27 Deductible part of self-employment tax. Attach Schedule SE 27 28 Self-employed SEP, SIMPLE, and qualified plans 28 29 Self-employed health insurance deduction 29 Penalty on early withdrawal of savings 31a Alimony paid b Recipient's SSN 33 Student loan interest deduction 34 Tuition and fees. Attach Form 8917 .. .. . 35 Domestic production activities deduction. Attach Form 8903 35 36 Add lines 23 through 35 - 37 Subtract line 36 from line 22. This is your adjusted gross income For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Fom 1040 (2017) Department of the Treasury-Internal Revernue Service U.S. Individual Income Tax Return OMB No, 1545-0074 IRS Use Only-Do not write or staple in this space. For the year Jan. 1-Dec.31.2017, or other tax year beginning Your first name and initial 20 Your social security number If a joint retum, spouse's first name and initial name Spouse's social security number Home address (number and street). If you have a P.o. box, see instructions. Make sure the SSN(s) above and on line 6c are correct. City, town or post office, state, and ZIP coda. If you have a foreign address, also complete spaces below (see instructions) Chock horo if yau, or your spouse filing jcintly, want $3 to go to this fund. Checking bak below will nat change your tax or oreign Foreign postal co0a Filing Status Single Check only one 3 Married filing separately. Enter spouse's SSN above Head of household (wah qualifying person) (See instructions.) If the qualifying person is a child but not your dependent, enter this 2 Married filing jointly (even if only one had income) and full name here. 5 Qualifying widow(er) (see instructions) 6a Yourself. If someone can claim you as a dependent, do not check box 6a on 6a and 6b (3) Dependents (4)if child under age 17 oualifying far child tax credt lived with you . did not live with you due to divorce name Add numbers orn d 7 8a Total number of exemptions claimed Wages, salaries, tips, etc. Attach Form(s) W-2 Taxable interest. Attach Schedule B if required Income b Tax-exempt interest. Do not include on line 8a . 9a Ordinary dividends. Attach Schedule B if required W-2 here. Also 10 Taxable refunds, credits, or offsets of state and local income taxes 12 Business income or (loss). Attach Schedule C or C-EZ 13 Capital gain or (loss). Attach Schedule D if required. If not required, check here 13 14 Other gains or (losses). Attach Form 4797.. .. 15a IRA distributions 16a Pensions and annuities 16a 17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17 18 Farm income or (loss). Attach Schedule F. 20a 21 22 Social security benefits 20a Other income. List type and amount Combine the amounts in the far right column for lines 7 through 21. This is your total income Adjusted Gross Income 24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ 24 25 Health savings account deduction. Attach Form 8889 26 Moving expenses. Attach Form 3903 27 Deductible part of self-employment tax. Attach Schedule SE 27 28 Self-employed SEP, SIMPLE, and qualified plans 28 29 Self-employed health insurance deduction 29 Penalty on early withdrawal of savings 31a Alimony paid b Recipient's SSN 33 Student loan interest deduction 34 Tuition and fees. Attach Form 8917 .. .. . 35 Domestic production activities deduction. Attach Form 8903 35 36 Add lines 23 through 35 - 37 Subtract line 36 from line 22. This is your adjusted gross income For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Fom 1040 (2017)