Donating appreciated stock is one of the easiest ways to give more to causes you care about.

Maybe your stocks have appreciated greatly since you purchased them. Maybe a surge in value of one of your holdings has thrown your portfolio off balance. Maybe you just want to refocus on other investment categories. If you also give to charity, these scenarios should encourage you to review your investment portfolio with a donation strategy in mind.

Why? Because donating stock directly to charity is one of the most tax-smart ways to give. Yet, it is often not well understood or widely used.

Here are some reasons you should give stock donation a try:

You can give more

By donating stock that has appreciated for more than a year, you are actually giving 20 percent more than if you sold the stock and then made a cash donation. The reason is simple: avoiding capital gains taxes. The maximum federal capital gains tax rate is 20 percent on long-term holdings. Given that the Dow Jones Industrial Average rose from nearly 18,000 at the end of March 2016 to nearly 34,000 at the end of March 2021, you are likely to realize a taxable profit on the sale of assets you purchased in the past five years. But if you donate the stock directly to a charity, there’s no capital gains tax to pay. Plus, you are still eligible to deduct the full fair-market value of the asset you donated from your income taxes, up to the overall amount allowed by the IRS. And remember that your appreciated assets can also include assets that are not publicly traded, like restricted stock or bitcoin.

You can potentially reduce future capital gains

Many investors have stocks that they love and want to hold for the long term. Any appreciation of that stock’s value confirms your belief in it, but it can also set the stage for substantial gains when you sell. So consider donating some of your appreciated shares and then buying new shares to reset your cost basis at the current, higher price. This will reduce your future capital gains tax exposure if the stock continues to grow in value.

You can give your portfolio a health check

Even with a good diet and regular exercise, your health can get out of balance. So, too, can your stock portfolio. If a review of your investments’ gains and losses shows that it’s time to rebalance your portfolio to maximize its performance and optimize for risk, donating stock can give your portfolio the health check it needs. Implementing a donation strategy puts your capital gains to work funding your philanthropy. Talk to your advisor about which assets to put to a better use.

To be eligible for a charitable deduction for a tax year, donations of stock need to be received by the end of the year. Because different assets take different amounts of time to be transferred, you should initiate your transactions as early as possible.