I promised yesterday to say more about the short-run implications of the tax bill for me. I'm not giving advice but some of you might find this helpful.
The first major point is that the increase in the standard deduction to $24,000 changes things a lot for my wife and me. We have been itemizers ever since buying a house in 1986. But our mortgage interest is now down to about $3,000 a year, we give somewhere between $2,000 and $2,500 to charities annually, our property taxes are about $4,000 a year, and our state income taxes (we live in high-tax California) are about $10,000 a year. That totals about $19,000. With the limit on deductibility of state and local taxes (SALT) of $10,000 a year, we would have itemized deductions next year, not of $19,000, but of $15,000. It's clearcut that we should not itemize next year. We will probably never itemize again.
Now notice how the tax bill will drive my behavior this month. I give almost half of the charitable deductions in mid-December. I just did so. But I give to the same 4 or 5 charities every year, and usually about the same amount plussed up a little (about 10%) each year.
So here's one clearcut implication: I will take the 4 charities that I know I'm going to give money to and give them again, this month, what I gave them for 2017. Then in 2018 I will give them almost nothing. That way I get the tax deduction this year. I won't, obviously, get it next year. Beyond 2018? I'm not sure. I'm guessing that my demand for charitable giving is relatively inelastic.
Interestingly, though, there is one charity I give to where the tax bill has caused a major change in relative prices. I give annually (actually I missed a few years but am back on board) to the Marijuana Policy Project. There are two ways to give: (1) to a fund for political action where your donation is not tax-deductible, and (2) to a fund whose activities can't include political action where your donation is tax-deductible. I accidentally gave to the non-tax-deductible fund this year by clicking the wrong button. Water under the bridge: it was only $250. But I figure they will use the money more effectively if unconstrained. So from 2019 on, I will give to the one that is not tax-deductible. I'll go on line in the next couple of days and give another $250 to the one that is tax-deductible; that way I get a deduction this year. Then I'll give nothing in 2018.
Now to the big one: prepayment of taxes. I've run this by my accountant and he is not convinced I can do this. So I'm waiting on his hearing more. But if I get the green light, I will prepay this month about $9,000 of my 2018 California income taxes. He worries that the California state government will regard this as overpayment of 2017 taxes and simply give a refund in April which, of course, is taxable in 2018. I could still gain from arbitrage between tax rates--I think I'm barely into the 28% bracket this year and will clearly be in the 24% bracket next year. But that's chicken feed, especially since I would have to borrow on my credit line to do this. I figure, though, that I can do it and have it counted as 2018 income taxes by using this form.
My accountant did tell me that I can go to the county tax office next week and prepay my 2018-2019 property taxes that are due in December 2018 and April 2019. That's $4,000. That's big.