Why not prepay 2018 state income taxes to boost your refund

Posted at 6:00 AM, Dec 21, 2017
and last updated 2017-12-21 15:05:23-05

SAN DIEGO (KGTV) - Tax reform is on the way and it could mean big changes for how much San Diegans get back in refunds.

Now, there are some things you can do - and others you shouldn't do - to boost your upcoming refund before the changes take full effect. 

"California is a high tax, high-cost of living state," said Steve Gill, an accountancy professor at San Diego State University.

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But while the sunshine tax may squeeze San Diegans during the year - it at least helped some homeowners get a bigger refund.

It's because people can deduct all of their state and local income taxes, plus property tax, from their federal return.

But the GOP tax plan caps that amount at $10,000 starting in 2018. A lot of San Diegans pay more than that - so their future refunds could be smaller. 

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That's why some may be looking to maximize what they get back by prepaying next year's state and local taxes now,

Gill says not to do that.

It's because the tax reform plan will only let you write off estimated state and local income taxes in the year they are due - so people who are self-employed or own their own businesses should hang onto their money.

That rule doesn't apply to property tax, so prepaying the second installment due in February can boost your refund.

"I couldn't paint it as a better picture than, we're going to wake up on January first, and it's a whole new tax world," Gill said. 

Gill says it's a better idea to get a write off is to make a charitable contribution now, especially for those who may stop itemizing next year.

The tax plan lowers rates in seven brackets and doubles the standard deduction, which most renters take. That means individuals and married couples, especially renters, will be able to write off more on their taxes.