Diversifying Your Donor Base: Strategies for Independent Schools

As a nonprofit organization, raising capital and soliciting donations can be challenging. From economic headwinds to legislative change, there are many external forces affecting the fundraising landscape.  

Independent schools can counter-act some of these market forces by diversifying their fundraising approach. Administrators should know about the substantial tax savings to be had when donors give certain types of assets or in a specific way. 

Let’s look back at recent tax law changes to understand the state of philanthropy. Then, we’ll look forward to the many giving strategies and vehicles that independent schools should have on their radars. 

How Has Federal Legislation Shaped Charitable Giving? 

Tax benefits may not be every donor’s primary motivation for making charitable gifts, but they certainly aren’t a detractor. It’s logical that changes in tax legislation can have a meaningful impact on the donor landscape for independent schools. 

In 2017, the Tax Cuts and Jobs Act made several significant changes to individual and business taxation. Some further incentivized charitable giving, but many others made it harder for taxpayers to claim a tax benefit from their donations. 

Before the TCJA was enacted, deductions for cash donations were limited to 50% of a taxpayer’s adjusted gross income (AGI). The TCJA raised that limitation to 60% of AGI through the end of 2025. The loosened limitation is a pro for charitable giving. 

However, also through 2025, the TCJA also doubled the standard deduction amount and limited state and local tax (SALT) itemized deductions to $10,000 (which were previously unlimited). These two provisions have drastically reduced the number of individuals who itemize their deductions. Because charitable giving tax benefits are available only to individuals who itemize, the hurdle to claiming charitable contribution deductions became harder for donors to clear—particularly small-dollar donors. 

Due to these legislative changes, many independent schools have seen a significant reduction in small-dollar donations that may be crucial to their growth. Data confirms the reality: The Tax Policy Center estimated that the number of households that itemize their deductions was cut in half in the first year after the TCJA’s enactment. 

There’s hope that the expiration of these provisions at the end of 2025 will stoke more charitable giving. However, there’s a chance that the U.S. Congress will extend these tax provisions, adding a level of certainty in the near term. 

How Can Donors Maximize Their Charitable Contribution Deductions? 

It may be harder than it used to be to score a charitable contribution tax deduction, but it’s not impossible. You can remind donors of these giving strategies that can lead to tax savings, even given today’s tax law. 

Bunch Deductions into a Single Tax Year 

Every year, individual taxpayers must choose whether to take the standard deduction or itemize their deductions. If the taxpayer’s itemized deductions are greater than the standard deduction, then they should itemize; if not, then they should stick with the standard deduction.  

Bunching is a common strategy to help taxpayers receive tax benefits for their charitable giving. Instead of donating smaller sums annually, the taxpayer will make one larger donation every few years. 

Consider a prospective donor who wants to contribute $5,000 yearly—but only if they can get a tax deduction. By donating $10,000 in one year and nothing the next, the donor is more likely to reach the itemizing threshold in the contribution year, allowing them to take advantage of the tax deduction. 

Donate Directly from an IRA 

Retirees have another way of receiving tax benefits for their charitable giving. When retirees make donations directly from their individual retirement accounts (IRAs), they: 

• Reduce their AGI by the contribution amount, which can lower Medicare premiums and their tax bill. 
• May partially or totally satisfy their annual required minimum distribution. 

To receive these tax benefits, the taxpayer must make a qualified charitable distribution (QCD). A QCD is a trustee-to-charity transfer, meaning the money must go directly from the IRA to your independent school. Taxpayers can make up to $108,000 in QCDs in 2025. 

Notably, gifting from an IRA allows a retired taxpayer—someone who likely has paid off their home and therefore has few itemized deductions—to receive two tax benefits for the same donation. They enjoy the tax benefits of a QCD while also participating in the expanded standard deduction. 

What types of gifts should nonprofits seek in 2025? 

Cash contributions from individuals are always great, but don’t overlook the many other types of donations that can benefit your organization and provide substantial tax benefits to your donors. 

Gifts of Appreciated Stock 

It’s worth asking donors whether they’ve considered donating stock from their investment portfolios. The benefits of donating appreciated stock are three-fold: 

• The taxpayer avoids up to 23.8% in federal income taxes—plus state income taxes—on the sale of appreciated stock. 
• The taxpayer can get a tax deduction for the full market value of the stock as of the contribution date if they itemize their deductions. 
• The nonprofit organization doesn’t pay capital gains taxes if and when it sells the donated stock. 

The natural time for an individual to donate stock is when rebalancing their portfolio. Rather than liquidating a portion of their winning investments to return the portfolio to its target asset allocation, the individual can donate some of those investments to reduce their capital gains tax burden and score a tax deduction. 

Gifts From Donor-Advised Funds 

For donors who aren’t ready to contribute large sums to your organization in one year, donor-advised funds (DAFs) are entities that hold funds that a taxpayer plans to donate at a later date.  

The taxpayer can claim a tax deduction in the year of the DAF contribution, but they can decide to give the funds to a qualified nonprofit at any time. DAFs are a great way to bunch deductions into a single tax year, particularly when the taxpayer isn’t set on where they’d like to contribute the funds. 

Let’s say a taxpayer donates $50,000 to a DAF in Year 1. Assuming the taxpayer itemizes their deductions and meets other requirements, the taxpayer claims a $50,000 charitable contribution deduction for Year 1. Then, in Year 2, the taxpayer can direct the DAF to give $25,000 to their alma mater and $25,000 to a nonprofit museum. The DAF will do its due diligence to ensure the organizations are in good standing with the IRS and then disburse the funds on your behalf.   

Gifts From Private Foundations 

High-net-worth families often establish private family foundations to administer their charitable giving. Here’s how it works: Families create and endow a private nonprofit organization with large sums of money that the organization invests and donates, potentially for generations. In exchange for tax benefits on investment growth, private foundations are required by law to distribute at least 5% of their assets through grants and other charitable activities.  

Because of this annual distribution requirement, many family foundations maintain a long—or short—list of organizations to which they contribute annually. Building relationships with family foundations with a complementary charitable mission can be a boon to your school. 

Smith + Howard: Independent School Specialists 

With decades of experience serving independent schools nationwide, Smith + Howard uses a cache of strategies to help organizations process donations more efficiently and remain compliant with the growing number of rules and regulations.  

Reach out to a Smith + Howard advisor to learn more about services we can provide to your independent school.