Donating money to worthy causes is wonderful, but you'll get even more tax advantages if you donate appreciated stock instead. Here's how it works.

First, you'll need to evaluate how long you've held the stock. Stock held for one year or less falls in the short-term category; the rest is considered long-term. Next, figure out the stock's fair market value, or what you'd receive if you sold the stock on the day you make the charitable contribution. (Please note that you don't actually have to sell the stock.)

You can claim short-term stock as a contribution and deduct the fair market value, less the amount it has appreciated since you've held it. In most cases, this means that your deduction is basically your initial cost of the stock. For example, if you bought shares for $800, held them for a year or less, and donated them when they were worth $1,000, you're looking at an $800 deduction. Not a very good plan from a tax standpoint.

But if the sale of the stock on the day of the contribution would result in a long-term capital gain -- meaning that you held the shares for more than one year -- you can generally deduct the full fair market value of the donated shares. Say you donate 100 shares of stock on a day when they're worth $20 each. No matter what price you originally paid for the shares, your deduction will be the full $2,000 value of the appreciated stock.

Consider that, if you bought the shares long ago at $5 per share, total gain on the shares would be $1,500 -- and that gain is taxable should you actually sell the shares. By donating the stock, there's no gain on which to be taxed. At 15%, the tax on $1,500 would have been $225. You're getting a deduction for a $2,000 donation and thumbing your nose at Uncle Sam as you pocket the $225 in taxes he would otherwise have collected. Powerful stuff, eh?

But don't forget: The best-laid plans for charitable contributions could backfire on you if you don't itemize your deductions. If you use the "standard" deduction, a charitable contribution of appreciated stock might not provide you with all of the tax benefits you expect. Tax benefits shouldn't be the only reason you donate to charity, of course, but as long as you're giving to the needy, it's nice to receive the most tax-favorable treatment.

How it's done
To donate stock, you have to transfer ownership of the shares. That may be easier said than done, but don't become discouraged. Your broker can help you, as can the charity to which you're planning to contribute. In some cases, you might find that the charity has an account with the same broker that you use. In that case, the transfer is a simple "book" entry for the broker.

In other cases, you may have to "sign over" the actual shares to the charity. That can be a bit more of a hassle -- for both you and the charity. If you are going this route, make sure that you have an understanding of how you physically transfer shares of stock. Perhaps you can talk your charity into opening an account with your broker. Then you would be back to the simple "book" transfer. You'll generally find that charities are very easy to work with when you offer them a donation.

Finally, you might consider using a commercial charitable "gift trust" (also known as a "donor advised fund") as a conduit between you and the charity. These gift trusts allow you to transfer the shares to the trust, take the appropriate deduction for the appreciated value of the shares, and then write a check (from the trust) to the charity for the donation amount that you would like to make. Using a gift trust is especially helpful when you have a large position in a stock (or stocks) but you have a number of charities that you want to favor with a contribution. It makes the paperwork much easier to deal with.

Many mutual funds have these types of gift trusts available. I've personally used Fidelity Charitable Gift Fund in the past. You might want to check this (and others) out, since they offer some real advantages from a tax, administrative, and investment standpoint.

Which stocks to give?
If you're planning to donate stock, choose carefully which shares you give. The factors that should most influence your decision are how long you've held the given shares, whether they have appreciated or not, and how much they've appreciated.

If a stock has actually fallen in value, for example, you're better off selling it so that you can claim the capital loss on your tax return. Then, if you wish, you can donate the proceeds of the sale to generate a contribution deduction.

If the stock you donate has appreciated considerably, you'll realize a large charity deduction. Sounds great, right? But remember that your total deductions for this type of charitable contribution are generally limited to 30% of your Adjusted Gross Income (AGI). Even though you can carry over (but not back) any excess contribution for five years, you won't receive the most current "bang" for your buck if you overcontribute.

Remember that donating a stock removes it from your portfolio. Is that what you want to do? You might consider making a contribution of a stock that has not only appreciated but also fallen out of your favor because the fundamentals of the company have changed. Contributing a stock that you really love can be a not-so-great idea, as you'll miss out on any future appreciation. The charity will likely sell the stock that you donate as soon as it receives the shares. If you were hoping your intended recipient might hang onto that little treasure you've found and reap its future gains, you and your portfolio may both be disappointed.

Finally, if you do have a winner that you think is going to be a bigger winner in the future, you may still make a contribution of that stock and keep it in your portfolio. How? Simply buy it back after you make the charitable contribution. It'll cost you real live dollars to do it, but you may still benefit greatly in the long run. You won't even have to wait more than 30 days before buying it back, as the wash sale rules don't apply to stock sold at a profit.

A Foolish thought
Part of being a Fool is helping others, and charitable contributions do just that. If done correctly, the only loser is the U.S. Treasury -- and in this case, the Treasury doesn't really mind. The government realizes that we're all better off when many of us donate to our favorite charities. If you can do good things with your contributions, and save yourself tax dollars at the same time, it's certainly something to consider.

The Motley Fool has kicked off its ninth annual Foolanthropy campaign! Nominate your favorite charities on our Foolanthropy discussion board through Nov. 1. For guidelines on what makes a charity Foolish, visit .

When he's not dealing with tax issues, Roy Lewis is a motivational speaker who lives in a trailer down by the river. He understands that The Motley Fool is all about investors writing for investors . You can take a look at the stocks he owns as long as you promise not to ask him which stock to buy. He'll be glad to help you compute your gain or loss when you finally sell a stock, though.