(FORTUNE Magazine) – I am thinking of donating some stock to charity. Does it matter how long I've owned the shares? -- Jessica

When it comes to your tax return, the answer is yes. If you donate stock that you've owned one year or less, your deduction will be equal to whatever you paid for it or its fair market value--whichever is smaller, says Martin Nissenbaum, the national director of personal income tax planning at Ernst & Young. For example, if you bought some shares for $1,000 and gave them away 11 months later when they were worth $1,200, you'd get to deduct only $1,000. But if you bestow stock that you've held for more than a year, you can deduct its full fair market value on the date of your gift. So in the example above, if you waited another few months, when the shares were worth, say, $1,300, you'd get a deduction for that full amount. What's more, neither you nor the charity would pay any tax on the $300 capital gain.

This assumes, of course, that your stock has appreciated. It's never a good idea to donate stock that has tanked. Say you bought 100 shares of Merck for $46 a share and it's now trading at $26. If you gave the stock away, you'd get to deduct the $2,600 the stock is worth now, but you wouldn't get to recognize your $2,000 capital loss. The smarter strategy: Sell the stock first, and send the proceeds to the charity. The recipient ends up in the same position, and you capture the loss, which you can then use to offset your capital gains and reduce your tax bill.