When stock prices slide and gains evaporate, investors are usually left with the meager consolation of smaller tax bills. If a long stock decline were to hit now, however, investors could easily be required to pay more.

The problem is that the stock market has become an important source of consumer stimulus and government revenues, and bullish assumptions about stock returns have been built into state pension math. A prolonged market downturn could thus set off a chain of effects that would end with sharply higher income taxes.

Investors can do more than sit and wait. Municipal bonds, tax-deferred retirement accounts and master limited partnerships are among tools that can trim taxes. AA-rated, 10-year munis pay more than Treasurys, even before considering their tax advantages. The contribution limit for 401(k) retirement plans remains $16,500 for 2011, but workers over 50 might be able to make an additional $5,500 “catch-up” contribution, depending on their plan. MLPs include Kinder Morgan Energy Partners (KMP: 69.40, -1.06, -1.50%), Enterprise Product Partners (EPD:42.00, 0.20, 0.48%) and Magellan Midstream Partners (MMP: 58.96, 0.42,0.72%). They yield between 5.3% and 6.5%, and a portion of their income can qualify for tax deferral.

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