Instead of eyeing tax shelters as quick, end-of-the-year deductions, most financial experts advise viewing them as long-term investments that require careful consideration and common sense.
Beyond the usual tax breaks, what are other options for the novice investor? Here are eight ideas offered by Washington financial consultants:
* Municipal Bonds. Often used to finance school-district projects, highway construction and other public works, "munis" offer tax-exempt interest, and they're not risky. Investment in local bond issues also can mean a break in state taxes. Although municipal bonds have been yielding only about 10 percent, they add up to more than 15 percent when tax benefits are included. Minimum investment: $5,000.
* Taxable Bonds. Although not considered a shelter, some financial advisers recommend them over munis -- because of their appreciation -- for taxpayers in low brackets. Generally available for a minimum $1,000 investment.
* Tax-Exempt Unit Trusts. If municipal bonds are too expensive for you, these fixed portfolios of munis may be more accessible. For as little as ,000, you buy diversification. Most are made up of highly rated munis, and many guarantee repurchase at market value anytime. Unit trusts are considered good, because you don't have to manage them and they make good collateral.
* Tax-Exempt Bond Fund. Stepbrother to the unit trust, but slightly riskier: Sponsors buy and sell securities to maximize safety and yield. Sometimes they make money for you, sometimes they lose it.
* Electric Utility Stock Dividend Reinvestment. An incentive to invest in financially troubled electric utilities; reinvested electric utility dividends are tax deferred until the stock is sold. If stock is held a year or more, dividend profits are given favorable capital gains treatment by the IRS, which cuts the tax by more than half. The total amount that can be sheltered annually: $750 on a single return and $1,500 on joint returns.
* Deferred Annuities. Although their reputation as the safest of nongovernment, guaranteed investments has been damaged recently by the financial troubles of some major annuity dealers, they remain a sound investment for anyone willing to lock up a minimum $5,000 until retirement. Basically, deferred annuities are savings accounts maintained by life insurance companies at a guaranteed interest rate: usually a point less than the riskier taxable corporate bonds pay. So long as you don't touch the account, you pay no taxes.
* Farmer's Home Program. Funds home construction in rural areas. According to Peter McCarthy, senior vice president of tax-advantaged investments at Johnston, Lemon & Co., it's ideal for the higher-bracket investor who can't afford or qualify for limited private partnerships. "The investment is $50,000 paid over six years -- a little more than $8,000 a year. Write-off is about two to one, the term is eight to 12 years, it's safe, the return is good when it's sold and because it's government-backed, there's no chance of an audit."
* Certified Historic Rehabs. May be tough to find at the end of the year, but make excellent investments for taxpayers in the 45 percent bracket or above, making a joint income of at least $85,000 in 1984, with a net worth of $250,000. "They're a tax credit, not a deduction," says McCarthy, "so it's dollar for dollar."
Limited partnerships -- the riskiest, top-dollar tax shelters -- remain the exclusive territory of the wealthy. They require investors to meet stringent standards which prove they can afford to lose their investments. Typically, they invest in oil and gas drilling, equipment leasing and, most popular now, real estate.