For each of the last 20 years, Americans have spent more on local, state and federal taxes than on food, clothing and housing combined.

In 2006, the average taxpayer worked 120 days — four full months — just to keep tax collectors happy. According to the Tax Foundation, Americans shell out 32 cents of every dollar earned on taxes.

But you already knew the bills added up to big pain. Now you want to know what to do about it. Here are some moves that could help:

Invest locally
Middle- and high-income taxpayers often come out ahead by owning tax-free municipal bonds rather than Treasury securities. That’s because municipals, whose income is generally free from federal tax, although they may be subject to state and local taxes, typically yield 80% to 90% of comparable-maturity governments.

Northern Funds offers four broadly diversified tax-exempt mutual funds, plus three state-specific funds (designed for residents of California and Arizona) that provide exemption from state income tax as well. Although municipal bonds don’t enjoy the same ironclad guarantees as Treasury securities, the investment-grade municipal sector has enjoyed a strong credit history.

Play keep away
Mutual funds distribute their income and capital gains late in the year, so if you’re planning to make an investment, consider making your purchase in the first few months. If you wait and then make your investment just before a capital gains distribution, you could get socked with taxes on that distribution.

You should also know that if you hold that investment for at least 366 days, it could become eligible for a lower long-term capital gains rate.

Stay put
You probably already know that taking a long-term, buy-and-hold approach to well-performing funds makes the most sense from an investment standpoint. But it also could save you dollars and cents on your tax bill.

When you redeem mutual fund shares — with the exception of money market funds — it’s considered a taxable event and must be reported on Schedule D of your federal income tax return. That includes checks written against a stock or bond fund. So it turns out that what’s good for your portfolio is also good for your budget on April 15.

Be specific
If you have to sell fund shares, try to match them up with a similar-sized purchase that carries a high cost basis. That way, you’ll pay less immediate tax, thereby allowing your earnings to grow for a longer period.

Your financial advisor can give you the necessary information to make your fund sales as tax-efficient as possible.

Think passive
Actively managed funds usually do more buying and selling of stocks than passive index funds, which are designed to mimic movements in a benchmark. Less trading tends to make index funds more tax efficient.

Of course, actively managed funds should play a key role in a diversified portfolio, since they can outperform a benchmark. Still, index funds offer attractive tax advantages that might complement actively managed funds.

Allocate carefully
Many investors own equity and fixed income funds. The type of account those investments are placed in can make a big difference to your after-tax return over time.

In general, bond funds are more appropriate for tax-advantaged accounts, like IRAs and 401(k)s, whereas equity funds belong in taxable accounts. That’s because the capital gains that stocks typically generate could be subject to a lower tax rate while bond income (with the notable exception of municipal securities) usually receives no favorable treatment.

Other factors, such as a fund’s tax efficiency and your own asset allocation plan, may affect this decision as well, so talk to your financial advisor about the best way to fund your accounts.

Maximize retirement contributions
The best way to put tax-advantaged money to work is by contributing the maximum amount in your retirement accounts each year. Contributions usually are tax deductible and earnings grow tax deferred. Make this your top priority for 2008.

Take control
No one can turn back the clock to the dawn of the 20th century, when Tax Freedom Day fell in mid-January. But by using the eight simple steps described here, you’ll spend more time working for yourself and less time toiling for Uncle Sam. Now that’s independence.