
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, January 24, 1994                   TAG: 9401220026
SECTION: MONEY                    PAGE: A-10   EDITION: METRO 
SOURCE: JANE BRYANT QUINN THE WASHINGTON POST
DATELINE: NEW YORK                                LENGTH: Medium

IN-DEMAND DRIPS ARE A DRAG AT INCOME TAX TIME

Calling all Drippers. Your dedication to the tightwad "Drip" way of stock investing saves you so much money that thousands are following in your tracks. More companies want to sell you shares, more Drip plans offer easy ways to buy, more publishers are cranking out newsletters and Drip directories.

That's the bright side. On the dark side, the more passion you show for Drip investing, the freer the companies may feel to start charging higher fees.

A Drip is a dividend reinvestment plan, now offered to individual stock investors by 900 American First of two parts. corporations as well as a handful of foreign ones that trade on the U.S. exchanges. Plan members can have part or all of their dividends reinvested automatically in new company shares. For this service, you usually pay little or nothing.

Some 100 companies even offer you a discount. Shares purchased with reinvested dividends may cost 3 percent to 5 percent less than market price, and sometimes as much as 10 percent less.

Besides reinvesting dividends, you might also be able to buy company shares for cash. Each plan sets different limits. A typical minimum: $10 to $50 a month.

If you do have to pay transaction costs, they're much less than stockbrokers normally charge. Service fees might run $5 to $10 per transaction.

A downside to Drip investing is income taxes, which can be an administrative mess. All your dividends are taxable, even though they're automatically reinvested. If you buy at a discount, the value of the discount is taxable, too. So is the service fee and brokerage commission, if the company pays them for you. If you itemize on your tax return, service fees qualify as a miscellaneous deduction.

Taxes really get hairy when you sell. To figure your profit, you must calculate the tax cost of the shares you bought, including fractions of shares that were credited to your account. You also add back any brokerage charges that you paid taxes on already.

Next: Getting started in Drips.

by CNB