Here's an investment strategy that requires some time consuming research, but the payoff can be in the form of capital gains that are taxed at a maximum rate of 20%. When large corporations get into financial trouble, the institutional investors often dump their bonds before the end of the year. The reason is because they don't want low rated bonds in their year end portfolio.

The bonds are then available at discounts far below their maturity value. Although capital gains are not available on bonds that are issued at a discount, they are available for gains arising from discounts after the bonds are issued.

A company might be in serious trouble and still have some bonds that are well secured with some kind of collateral. The key is to get a copy of the annual report and the company reports to the SEC to find out whether any of their outstanding bond issues are likely to be paid in full. If you buy these bonds when the institutional investors are dumping them, you will be able to get them at a generous discount. When the bonds recover or mature, you will get a capital gain. You can turn this arrangement into a modest tax shelter by purchasing the bonds on margin and using the interest on the margin account to offset some of your other taxable investment income. However, you must have other taxable investment income to deduct the interest.