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Coronavirus Continues: Charitable Deductions, and 529 Distributions

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As we head into a new month of social distancing, wearing masks, and shopping from home, the ramifications of the COVID-19 pandemic are starting to gain clarity and some of the finer nuances of emergency actions taken by our government are peeking through. We’re taking a look today at time-sensitive action that may be needed for 529 distributions taken this year. Separately, we want to highlight a new above-the-line charitable deduction: it was passed as part of the CARES Act, and although it hasn’t gotten a lot of publicity it could play a meaningful part in helping your favorite nonprofit.

529 Refunds
When it became apparent that the novel coronavirus was posing a very real threat to the health of our country, universities nationwide sent their students home. What started as an extended spring break for many, has turned into the cancellation of the end of the year for schools from preschools to PhDs. Some schools refunded tuition; most at least refunded portions of room and board expenses for the remainder of the school year. If these qualified expenses were paid from a 529 plan, you have two options:

  1. Roll the funds forward as a credit toward next year. If your student will be attending the same school in the fall, you may reach out to the school and request they apply the funds to future expenses. If they have already refunded you the money, reach out to see if you can make a payment now for next year.
  2. Place the money back in to the same 529 account. You will need to replace the full amount refunded from the school, within 60 days of the refund check date. Any amounts not rolled back, or that miss this deadline, will be considered a non-qualified distribution. The amount attributable to earnings will be subject to ordinary income tax, and penalty. Make sure to keep records of these transactions, as they will be important when filing your 2020 taxes.

For more details on the process of re-contributions, check out this article from the Ohio 529 program’s website.

Above-the-line Charitable Deduction
2020 tax returns will have another line to look out for this year. The CARES Act includes a provision for a $300 above-the-line deduction to qualified charities, even if you don’t itemize! If you don’t already give regularly to a nonprofit, there are many that can use extra donations this year to stay afloat. A few ideas to jump-start your search:

  • Arts organizations - Many have had to cancel performances and are not bringing in their expected revenue.
  • Cultural organizations - Museums, zoos, and aquariums have seen a significant decline in ticket sales, and even annual membership renewals.
  • Community centers - Most have had to close and have suspended monthly membership payments. Donations can help maintain staff salaries.
  • Aid organizations - COVID-19 is truly a global problem, and the additional burden of this pandemic on top of communities already suppressed by poverty provides a great opportunity to send extra support at this time.

This new deduction is only available for cash donations (not stock or other in-kind donations), and donations to Donor Advised Funds are not eligible. For other tax topics related to the COVID-19 pandemic, check out our tax article.

With legislation and recommendations changing almost daily, it can be easy to miss an update that might impact your financial picture. The Foster & Motley team is always on the lookout for planning opportunities for our clients and are happy to answer any questions that your friends and family may pose while you are on your latest Zoom call. We continue to wish you well during these times and are ready to help however we can.