Last summer, both the Dow Jones and NASDAQ Index saw double-digit drops in overall value over a short period. Investors, caught by surprise and most, interested in long-term value, simply held onto their stocks and rode out the dip until both markets corrected themselves. However, bear market tax planning can provide the prudent investor unexpected savings.

Since most stocks took significant hits, especially companies involved with oil and technology, investors had the chance to claim capital losses by selling off stocks and mutual funds (underperforming ones) then reinvesting that revenue into similar stocks and funds. This strategy would have let them remain in the market long-term but create tax losses to reduce gains or lower income. This technique is called a “tax swap”.

Tax planning is an excellent tool to use when approaching your overall investment strategy exactly for these kinds of breaks. Using them to keep your income non-taxable will boost your rate of return over time. Furthermore, they are perfectly legal methods.

So what are some other common techniques available to you? First, max out your yearly retirement plan contributions if possible. Doing so not only saves it for your retirement, but it also reduces your taxable income for the year. Approaching retirement contributions as just another monthly bill will help you stay consistent in payments.

Second, consider investing in vehicles with built-in tax advantages, i.e. variable life insurance policies, tax-sheltered annuities, etc. They offer your income market exposure without having to worry about taxable gains or losses. As long as the money stays within the accounts and not withdrawn, they are not subject to taxes.

A similar option lies within Roth IRAs; even though you don’t have the same tax deductions as with traditional IRAs, you can still save significantly without tax problems. Also, after age 59 ½, Roth earnings can be withdrawn tax-free. This tax-exemption flexibility is what has made them an attractive savings instrument for many workers.

Third, you can always invest in tax-free municipal bonds. However, it is important to note that interest rates are always subject to change, which can either increase or decrease the value of your bonds. If you plan on holding them until maturity, though, then the long-term risk is reduced.

No matter what method(s) you end up using, remember this – be smart and open-minded about using tax-reduction strategies when the stock market takes a hit. There are opportunities to capitalize on down times if you pay attention.