Many people give donations at year-end to support their favorite charities—and to reap the tax benefits of doing so. But what many generous folks don’t realize is that, with some advance planning, there are efficiencies in charitable giving that can maximize both your gift and your tax deduction.

Donating money to a charitable organization may allow you to receive an income tax deduction, but only if you itemize your deductions. Most people accomplish this with cash donations, but this leaves opportunity on the table.

A Better Way to Give to Reduce Tax Liability

People are often so focused on income tax benefits that they avoid considering other tax costs, like capital gains taxes. A better donation method—for both the donor and recipient—is making a gift of highly appreciated stock and taking a deduction for full market value (FMV). This supports the charity, nets you a tax deduction and avoids possible capital gains tax. To illustrate why this is a better option, let’s examine a hypothetical situation.

Julie, who is in the 25% tax bracket, wants to donate $10,000 to her favorite charity. She doesn’t have the cash on hand but knows she can sell some shares of XYZ Stock to fund her donation. If she sells this stock and realizes $10,000 in long-term capital gains, she’ll be subject to a capital gains tax of 15% on that amount, which means she would only have $8,500 left to donate. That also means she’d only get an $8,500 deduction for her taxes.

However, if she were to donate XYZ Stock to her favorite charity, that donation would be exempt from capital gains taxes. The charity would receive the full $10,000 gift value, and Julie would benefit from the full $10,000 deduction.

How Charitable Giving Can Reduce Medicare Premiums

Charitable giving, if done right, can not only decrease your tax bill, but also potentially reduce the cost of your Medicare premiums. Your Medicare premiums are determined with reference to the Adjusted Gross Income (AGI) on your tax return two years prior (see Figure 1 below). Reducing these premiums, therefore, requires some planning so you can reduce your AGI on your tax return two years in advance. While donating cash or stock to a charity can create an income tax deduction, it does not reduce your AGI and subsequently will not reduce your Medicare premiums.

Figure 1: 2019 Income Thresholds and 2021 Medicare Part B Premiums

To donate to charity, reduce taxes and lower your Medicare premiums down the road, consider the strategy of directly donating your required minimum distributions (RMDs) once you turn 72. A direct transfer of your RMD to charity, called a qualified charitable distribution (QCD), not only helps fulfill the distribution requirement that’s mandated by the IRS upon reaching age 72 (as long as certain conditions are met), but it also reduces taxes by decreasing the amount of ordinary income from your RMD. In doing so, you reduce your AGI, which directly determines your Medicare premiums two years down the road. This is especially compelling when you are claiming the standard deduction instead of itemizing your deductions.

How much should you donate as part of a QCD strategy? That depends on you and your financial plan. Depending on your situation, you don’t have to donate your entire RMD to employ this strategy, or you can donate more than your RMD, but only up to $100,000 in a year.

With passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015, these QCD provisions are now a permanent part of the Internal Revenue Code. This means you can plan your charitable giving and begin reviewing your tax situation earlier each year.

What a QCD Strategy Could Look Like

In practice, here’s how directly donating an RMD could shake out: Bill, age 72, is single. His pension, Social Security and other income total $73,000. His first RMD is $16,000. Making a charitable donation of $2,000 via direct transfer of his RMD would reduce his AGI from $89,000 to $87,000 and avoid stepping up to higher Medicare premiums. Specifically, this strategy allows Bill to avoid a cost increase from $148 per month to $207 per month based on 2021’s Medicare premiums. Over a year, Bill would have saved $700 in Medicare premiums, in addition to federal income tax savings, by avoiding paying tax on $2,000 of his RMD.

According to Charity Navigator, $410 billion was donated to charity in the U.S. in 2017, and most of those donations (70%) came from individuals. Just imagine how much more of an impact these donations could make—both for the charities and the individual donors -if people diligently planned to maximize the benefits of their generosity. If you’re considering gifting money to charity this year, please consult a financial advisor or tax specialist to help make the most of your donation.

A previous version of this article was originally published on 12/22/15 on MarketWatch.com. You may view the article here.

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