How to Prepare for Higher Taxes

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3. Invest Tax-Smart

The classic way that individuals try to reduce their tax bills is through tax-free municipal bonds. Envision's Cohen says investors have already "stampeded" into this method of tax avoidance. "The inflows to muni bond funds have been unbelievable this year," she says.

Munis make the most sense if you're in a high tax bracket or if you live in a state with high taxes. However, Cohen warns, munis have gotten very popular and may be overpriced at the moment. "They're not a good idea for anyone if the market is overvalued," she says.

Higher taxes also may boost the popularity of other tax-efficient investing strategies. Milo Benningfield of Benningfield Financial Advisors in San Francisco sometimes recommends tax-managed mutual funds, in which portfolio managers use various strategies to boost investors' after-tax return.

Various trusts, family partnerships, and other schemes can help individuals lower their tax bill or avoid estate taxes. However, experts warn that tax laws affecting these methods could change in future years, especially around the estate tax.

4. Details Matter

The complexity of the U.S. tax code can be mind-boggling. And its provisions are changing all the time.

Individuals must also deal with state tax codes. And, Isdale notes, the complexity multiplies for people who live or work in more than one state. (She advises clients keep a close eye on state residency issues. A person who lives in both New York and Florida might consider spending more time south to take advantage of lower tax rates, for example.)

To master it all, "you really need to be thinking about taxes on a 365-day basis," Estill says. That's why it's very important to get advice from someone who knows taxes well. "It's a big, big puzzle," he says, and "missing a few of the pieces can be really detrimental to somebody."

5. Don't Overthink It

"While taxes are an important factor, they shouldn't be the deciding factor," Baird's Steffen says. In other words, don't worry so much about taxes that you make investing or employment decisions that don't otherwise make sense.

"You don't want to make an investment move purely for tax reasons," Benningfield says. "To me, tax uncertainty is nothing compared to investment uncertainty. I'm more concerned about where commodity prices are going than tax rates."

Taxes take a bite out of income of various kinds, and, for those in top tax brackets, tax bills are likely to increase. However, in a difficult economy, your top priority should not be merely avoiding the taxman—it should be making sure that your income continues.

Steverman is a reporter for BusinessWeek's Investing channel.

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