(MONEY Magazine) – VOTER FURY LAST NOV. 8--PERHAPS INCLUDING YOUR BALLOT--HAS virtually guaranteed that one way or another Americans will see their federal tax load lighten in 1995. The new Republican leadership in the House of Representatives promises to bring 17 tax-cut proposals from its famed Contract with America to a vote by April 13. Of course, all of those tax breaks won't pass--not even most of them. If they did, the $203.4 billion federal budget deficit could balloon by an estimated $150 billion by fiscal year 2000. Our forecast: a tax credit of $300 or so for families with incomes up to $50,000, more generous IRAs and a capital-gains tax cut. Undoubtedly, though, the message appears to be getting through to Washington: Our Taxes Are Too High. Do Something! And We Mean Now!

The evidence that tax levels are revolting appears in a newly released report from the Tax Foundation, a nonpartisan research group in Washington, D.C. According to the study, the median household (defined as a working couple with two kids and a gross income of $53,354) now pays 39.5% of its gross in federal, state and local taxes. What's more, similar households in the top 39.6% federal bracket are handing over as much as 50% of their take to the tax men. That means, at these rates, a couple would have to pay as much as $4.2 million in taxes during their productive years.

Can the Republicans (and their Democratic allies) roll back taxes enough to please the voters? The test will come early this year. "For now, you have to give the Republicans the benefit of the doubt that they'll fight tooth and nail for the tax cuts," says Stan Collender, a Washington, D.C. federal budget expert at the accounting firm Price Waterhouse. The challenge will be in financing the largesse. So look for genuine spending-cut pain to emerge in lockstep with any tax-cut gain.

Come what may, there's no reason to wait for the politicians to get their tax act together--particularly when the deadline for your 1994 tax forms is so near. Our comprehensive three-part tax package will show you how to beat the bite now. This article offers 11 ideas for cutting your federal income and Social Security taxes this year and beyond, with guidance on likely changes in the law. The next story, beginning on page 86, "How to Keep Your State and Local Taxes Down," shows you ways to trim the taxes that really hit close to your home. And "What Every Investor Must Know Now About Taxes," on page 94, focuses on how to keep taxes on your investments to a minimum.

As the tax sands shift this year, sound planning will become especially important. "Your best defense against the constantly changing tax code is to adopt a long-term strategy and update it as needed," says Kaycee Krysty, director of personal finance for the accounting firm Moss Adams in Seattle. Begin with the tips below. You'll find the ones that apply directly to you in the section that covers your federal tax bracket:

HELP FOR PEOPLE IN THE 15% BRACKET 1994 TAXABLE INCOME UP TO $38,000 FOR COUPLES FILING JOINTLY, $22,750 FOR SINGLES; '95: $39,000 AND $23,350

Chances are you're young if you fall into this bracket--or have a child with income. The advice in this section will help you develop valuable tax-saving habits early or help make your kids' fortunes grow faster.

If you make no other tax move, open an IRA. An Individual Retirement Account offers tremendous advantages to pre- pre-retirees in their twenties. You get to deduct a full $2,000 contribution to an IRA as long as your adjusted gross income is $25,000 or less if you're single, $40,000 or less if you are married and file jointly. (AGI is your total income minus a few tax- favored items, such as alimony you pay. Taxable income, the amount on which your tax rate is based, is your AGI minus your deductions and exemptions.) If your spouse works, you can each contribute $2,000 to your respective IRAs, for an annual tax savings of $600. To make saving easier, you can arrange with the mutual fund, broker or bank where you have your IRA to deduct the contribution from your checking or savings account each month. By the way, you have until April 17 to open and write off a '94 IRA. April 15 falls on a Saturday, so tax-filing day is delayed.

Washington watch advisory: Odds are strong that Congress will pass a so-called back-end IRA this year. This would permit nondeductible annual contributions of up to $4,000 per couple ($2,000 for singles). Like a traditional IRA, the earnings would grow tax deferred. Then after five years you could make withdrawals tax-free if you used the money for retirement, a first-home purchase, college or large medical expenses. The Republican proposal would even let you convert all or part of your current IRA to a back-end account, not including rollovers from employer-sponsored plans. To do so, you would have to pay income tax on the previously untaxed portion of the IRA, although you could spread the tax over four years. For now you're better off with a deductible IRA. Later you can convert to a back-end account if you need the money.

Duck the kiddie tax on your low-bracket children. By transferring cash or income-producing assets to a no-fee custodial account in your child's name at a bank, brokerage or mutual fund, earnings generally will be taxed at your child's lower tax rate, typically 15%. But if he or she is under 14, your child must pay taxes at your top tax rate on investment income above $1,200 in 1994, $1,300 in 1995--that would be the amount accumulated on about $16,250 earning 8% in 1995. To avoid this fate, look for investments that pay out little or no income until after the child turns 14. Worthy choices include Series EE U.S. savings bonds (now yielding 5.92%) and zero-coupon Treasury bonds (7.6% to 8.1%).

Washington watch advisory: The new GATT trade agreement will eliminate the guaranteed 4% rate for EE bonds you hold for less than five years (see Your Money Monitor on page 42).

Start your kid on an IRA. Since even minors may contribute up to $2,000 of their wages from, say, a summer job, to an IRA, this move can be a clever way to keep your child's earnings from being taxed while getting him or her a super-early start on retirement savings.

Washington watch advisory: If the back-end IRA becomes law, it could become a favored vehicle for funding a child's college education since you could make tax-free withdrawals for college after five years. For now, however, have your child use a deductible IRA. If the back-end version passes, you will probably be allowed to convert to one.

FOR PEOPLE IN THE 28% BRACKET 1994 TAXABLE INCOME OF $38,001 TO $91,850 FOR COUPLES FILING JOINTLY, $22,751 TO $55,100 FOR SINGLES; FOR '95, IT'S $39,001 TO $94,250 AND $23,351 TO $56,550

This bracket is typically populated by young families and retirees who need to take investment steps to keep the IRS away from their earnings or their Social Security checks.

Sell winning stocks and stock funds as soon as you wish, without tax worries. Lucky you. Because you're in the 28% income tax bracket, you don't have the problem folks in the 31%, 36% or 39.6% brackets face: risking a price decline by trying to hold on to a stock or equity fund for more than one year so it will qualify as a long-term capital gain, thus taxable at a top rate of 28%. So you can feel free to take your profits whenever the time seems right.

Washington watch advisory: If the long-term capital-gains rate is cut to half your top income tax rate, as new House Ways and Means Chairman Bill Archer (R-Texas) proposes, the advice above becomes inoperable--to cite a famous Republican term. That's because if you sold a profitable stock or stock fund that you've owned for a year or less, you would owe taxes at your 28% income tax rate instead of the proposed 14% capital-gains rate. Still, if you own a stock or fund that you think has peaked, go ahead and sell it in 1995. Not only is that a prudent investment move, but the way the proposed law is currently written, the new lower capital-gains rates would be available for any capital asset held for more than a year and sold in '95, regardless of when the law is passed.

File down your FICA tax. If you contribute to a flexible spending account at work, you may be able to cut not only your income tax but your Social Security (FICA) tax as well. An FSA lets you set aside up to $5,000 in pretax salary to pay for dependent-care expenses, plus another amount determined by your employer--generally $2,000 to $4,000--to pay for unreimbursed medical expenses. Assume you make less than $61,200-the highest income subject to the 7.65% FICA tax in '95-and you're in the 28% bracket. If you contribute $4,000 to your FSA, you'll shave $1,120 off your federal income tax and $306 off your FICA.

Minimize the bite on your Social Security check. Retirees in the 28% bracket are in the Social Security danger zone. As soon as your provisional income (adjusted gross income plus your tax-exempt income plus half of your Social Security benefit) inches past $32,000 on a joint return ($25,000 for a single), half your benefits are subject to federal tax. As your provisional income tops $44,000 on a joint return ($34,000 for a single), the danger becomes intense--up to 85% of your benefits are taxed. You can trim your provisional income by favoring such investments as EE savings bonds (you don't have to declare the annual interest until you redeem the bonds); rental real estate (its losses reduce your AGI) and growth stocks (their dividends are minimal and capital gains aren't taxed until you sell).

Washington watch advisory: Gradual relief may be on the way. Republicans propose phasing out the '93 law that taxed up to 85% of Social Security benefits; no more than 50% would be taxable by the year 2000. They'd also raise the amount people ages 65 to 69 can earn without losing benefits from $11,280 in 1995 to $30,000 by 2000.

FOR THE 31% and 36% brackets '94 TAXABLE INCOME OF $91,851 TO $250,000 FOR COUPLES FILING JOINTLY, $55,101 TO $250,000 FOR SINGLES; FOR '95, IT'S $94,251 TO $256,500 AND $56,551 TO $256,500

These brackets are the ones serious investors tend to find themselves in. Fortunately, there are ways to shave taxes:

Take a deep breath, and buy top-quality municipal bonds and diversified muni bond funds. We know, we know. This past year was ungodly for many muni investors who saw their bonds and funds lose as much as 11% of their value. The year ahead looks better, though. Although Money believes long-term rates will rise by as much as half a percentage point by mid-'95, we think rates will level off after that. Even today, on an after-tax basis, the 6% to 6.5% tax-free yields of intermediate-term munis exceed those of taxable bonds for investors in the 31% bracket and up. If you don't have the $25,000 to $50,000 to buy a portfolio of individual munis, invest through diversified national muni funds. Don Phillips, publisher of Morningstar, a fund rating service in Chicago, recommends USAA Tax-Exempt Intermediate Term (recent yield: 5.6%; 800-382-8722) and Vanguard Muni Intermediate (yield: 5.4%; 800-851-4999). (For the effect of the Orange County bankruptcy on muni investors, see page 78.)

Look into rental real estate. Landlords who actively manage their properties may deduct up to $25,000 a year in net rental losses against ordinary income such as wages, interest and dividends. You're considered active if you own at least 10% of a property and make management decisions like approving new tenants or authorizing repairs. The $25,000 maximum allowable write-off starts to phase out when your AGI tops $100,000 and disappears entirely at $150,000.

Consider taking more shelter. Since first and second homes still provide the best tax shelter around, ponder buying a vacation home. As long as you borrow only up to $1 million, you can fully deduct the interest on debt incurred to buy, build or improve a first and second home combined. And there's no limit on property tax write-offs. Points paid to buy a second home are not deductible in the year the house is bought, however. Deductions have to be spread over the life of the mortgage.

FOR THE 39.6% bracket 1994 TAXABLE INCOME ABOVE $250,000 FOR BOTH JOINT FILERS AND SINGLES; FOR '95, IT'S $256,500

Don't count on the Republicans to roll back the tax-the-rich rate hike that created this extra "bracket" in '93. Put one or both of the following strategies to use:

Set up a defined-benefit Keogh. If you're 45 or older and self-employed, investigate this potential monster of a shelter. Like other defined-benefit pensions, this special type of Keogh is based on your life expectancy plus the amount you want to draw down as an annuity when you retire. The maximum benefit you can receive is your average income over your three top earning years or $120,000, whichever is less. The cost of hiring an actuary to administer such a plan isn't cheap, however: up to $3,000 to set one up and around $1,250 a year. You have until Dec. 29 to open a '95 Keogh, though you can fund the plan through April 15, 1996.

Seek out a rabbi to defer compensation if you can. Many companies offer so-called rabbi trusts to high-paid executives (so named because the method was first used by a congregation for its rabbi). Your employer sets up an irrevocable trust, stashes money in it every year for you and pays the income tax on the fund. You then have retirement dollars building up to be spent when you are presumably in a lower tax bracket. However, you have no control over your trust, which can even be seized by creditors to pay your employer's debts. So be confident in your company's long-term health before asking for the rabbi's blessing.