Dividend Reinvestment Plans=DRIP

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Please read the complete article it's like 5 pages long, so I dod not post all of the article, but you save because you pay no Borker Fees, when you Buy, when you sell their could be a small fee, but not as much as the Borker would charge you. The big thing is that you shouls not take the dividend, just let it roll back into your account and it buys you more shares. So if you buy say 20 shares hold them for 25 years figure the money you made. Plus you can purchase you shares when the market is down the take the dividend when the shares goes up. Well anyway good read.

Dividend Reinvestment Plans

Rules for determining your basis and holding period for stock bought through a dividend reinvestment plan.
This page explains tax rules for dividend reinvestment plans (DRIPs). It covers the tax consequences of:

• Reinvesting dividends, and
• Buying shares through the optional purchase feature of a dividend reinvestment plan by sending in additional money.

Note: Having your dividends reinvested through a dividend reinvestment plan may seem a lot like receiving a stock dividend. But the tax rules for stock dividends are different. When a company pays a stock dividend, all shareholders receive their dividend in the form of stock, not just the ones who choose to participate in a dividend reinvestment plan.

Background

Many publicly traded companies maintain dividend reinvestment plans (sometimes called DRIPs). If you hold stock in XYZ and participate in a DRIP maintained by that company, cash dividends on your stock are automatically reinvested in XYZ stock.
Different companies design their DRIPs with different features. As a result, the tax consequences of different DRIPs can be slightly different. Here are some of the ways these plans may differ from one another:

• Some DRIPs charge a periodic service charge, which may be deducted from the dividends paid on your stock. For example, you may be required to pay a service charge of $30 per year to participate in the DRIP.
• Some DRIPs acquire stock directly from the company, while others may use your dividends to buy stock on the open market. If the plan buys stock on the open market, it will incur brokerage commission costs, and the date of purchase will not necessarily be the same as the date of the dividend.
• Some companies that maintain DRIPs will pay brokerage commission costs on purchases made through the plan. In other cases, the commission is paid out of the dividend and reduces the number of shares you receive.
• Some DRIPs permit participants to buy additional shares by sending a cash payment to the trustee of the plan. These purchases are called optional purchases.
• Some DRIPs provide a discount on purchases of dividend reinvestment shares, or on optional purchases, or both.

When you are considering whether to participate in a DRIP, you should receive a prospectus that describes the features of the plan. The prospectus will point out advantages of participation, which may included avoiding brokerage commissions or buying stock at a discount. It will also point our possible disadvantages of participation. For example, if you decide to sell the stock you hold in the plan, you may not be able to do so as quickly as if you held the shares in a regular brokerage account.
The prospectus will also include a section describing the tax consequences of participation. If possible, you should rely on that discussion, and on information supplied by the company that maintains the DRIP, to determine your tax consequences. If the tax information in the prospectus isn't available, or isn't clear, the following explanation may be helpful.
You Are the Owner

The tax law treats you as the owner of shares you hold in a DRIP. The prospectus may refer to a trustee that holds your shares and administers the plan, but for tax purposes your stock is not held in trust. The administrator of the DRIP is merely acting as your agent, the same way your stockbroker does if you maintain a brokerage account. You do not have to report income when you take your shares out of a DRIP. If you receive cash from a DRIP, you will report gain or loss on the sale of shares to provide the cash.
Service Charges

If you participate in a DRIP that imposes a service charge, this charge is not included in the basis of shares you buy through the plan. Instead, it is an investment expense, which you may claim as a deduction subject to the limitations that apply to investment expense deductions.
Amount of Dividend

When you participate in a dividend reinvestment plan, the amount of your dividend may not be the same as if you did not participate:

• If the plan incurs brokerage commissions, and the company pays the commissions rather than deducting them from the dividend, your share of the commission is treated as an additional dividend.
• If the company provides a discount on dividend reinvestment purchases, the amount of the discount is treated as an additional dividend. The same is generally true for a discount on optional purchases.

In general, you can rely on your annual Form 1099 to tell you the amount you must report as a dividend.
Basis in Your Shares

Your initial basis in shares you purchase through a DRIP includes:

1. The amount (if any) you paid for the shares, plus
2. The amount taxed to you as a dividend, minus
3. The amount (if any) deducted from your dividend as a service charge.

This basic rule can spin out in different ways:

• Suppose the stock you already own in a DRIP pays a dividend of $300. The DRIP buys shares directly from the company at a 5% discount, so your account is credited with $315 worth of stock. The IRS treats the additional $15 worth of shares as an additional dividend, so you are taxed on a dividend of $315, and that is your initial basis in the shares.
• Suppose the DRIP buys shares in the open market instead of buying them from the company. The company does not provide a discount, but it does cover the brokerage commission. The IRS treats your share of the brokerage commission as an additional dividend. If your share of the commission is $8, you are taxed on a total dividend of $308, and that is your initial basis in the stock.
• Suppose you send in $1,000 to make an optional purchase through the DRIP. The DRIP buys shares directly from the company at a 5% discount. Your account is credited with $1,050 worth of stock. It appears the IRS will treat the discount as a dividend. Therefore, you report a dividend of $50 (in addition to any other dividend you received) and take an initial basis of $1,050 in your stock.

Holding Period for Your Shares

For shares that are received in lieu of cash dividends, your holding period begins on the day after the date of the dividend. If you make an optional purchase through a DRIP, your holding period begins on the day after the date the plan makes the purchase (not the day you send in your money). These rules are in keeping with the general rule for stock purchases: the holding period begins on the day after the trade date for the purchase.

Example: You participate in a DRIP maintained by XYZ and receive stock as a dividend on March 15, 1999. Your holding period begins March 16, 1999. If you sell on or before March 15, 2000, your gain or loss on the sale is short-term. If you sell on or after March 16, 2000, your gain or loss on the sale is long-term.

It's possible you will end up holding a fractional share that has a split holding period. For example, the plan may credit your account with 8.22 shares for the March dividend, and 7.15 shares for the June dividend. You would then own 8 shares with a holding period beginning in March, 7 shares with a holding period beginning in June, and a fractional share (37/100 of a share) with a holding period that is split between those two dates.
Keeping Records

Figuring out your basis and holding period on any particular dividend reinvestment is usually not too hard. But if you reinvest dividends over a number of years, it may be very difficult to reconstruct the basis of your shares unless you keep records as you go along. It's a good idea to set up and maintain a good system of records for your stocks even if you do not participate in a DRIP. If you do use a DRIP, keeping good records is truly a necessity.


http://www.fairmark.com/capgain/basis/drip.htm

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https://gateway.equiserve.com/igwweb...tion=NSNewEnrl

Ran across this site it lists companies that you can invest in with a Minimum Investment (to open a new account or enroll in a plan) or if you own stock in these companies it gives you a Minimum Investment (for existing accounts). Click on Initial Investment $250 or Less
this will give you a listing of companies.