Charitable gifts are a critical source of revenue to nonprofit colleges and universities. These gifts are sometimes used to fund current operations through annual giving campaigns, while other gifts are directed to the long-term needs of the university. The basic principle underlying the charitable income tax deduction for gifts is that taxpayers should not be taxed on income that does not benefit them directly—because they give that income away to support the public good.
Many gifts are given to a university’s endowment. Endowments are complex, usually consisting of many—sometimes thousands—of different funds. Typically, most endowment funds are restricted by donors to support specific purposes, such as student scholarships, cancer research, and professorships. Colleges and universities are legally required to uphold donor intent when managing and spending endowment income.
Research universities use their endowments to support their educational missions of teaching, research, and public service by teaching students, performing research, and addressing problems affecting communities, states, and the nation. Endowments are also a critical source of student financial aid that helps to make college accessible and affordable.