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Conference nyoss1::market_investing

Title:	Market Investing

Moderator:	2155::michaud

Created:	Thu Jan 23 1992
Last Modified:	Thu Jun 05 1997
Last Successful Update:	Fri Jun 06 1997
Number of topics:	1060
Total number of notes:	10477

355.0. "DRIP and service charges paid by the company Question" by STAR::PARKE (True Engineers Combat Obfuscation) Thu Jan 14 1993 17:04

    How would one account for the service charges, payed by the company,
    in a DRIP.
    
    It's easy when all that happens is your dividends are reinvested, and
    become the basis for the new shares.  They also fall neatly into
    "dividends" for "this" years tax.
    
    I now have a couple of reinvestment plans where there is a service
    charge passed through and is reported at the end of the year.
    
    E.g. The 1099 reads:
    
    	Dividends;	  	3.xx	(Small number of shares to start)
    	Company Paid Charges:	6.00
    
    	Total:			9.xx
    
    	I Know the 3.xx is dividend income,
    
    	I assume 9.xx is my basis for the shares acquired
    
    	Is the 6.00 also "dividend", "other", or ?
    
    	Opinions ?
    	How have you done it (to those that have delt with this) ?

T.R	Title	User	Personal Name	Date	Lines
355.1		SOLVIT::REDZIN::DCOX		`Thu Jan 14 1993 22:18`	9
	Service charges paid by the company are, in a sense, in lieu of brokerage charges. Since the company pays them for you, they are considered taxable income, just like dividends, and are to be claimed as such, just like the dividends. Include these charges in Line 9, 1040 or Schedule B, line 5 if appropriate. Dave
355.2	Also..........	CXCAD::BERZON		`Fri Jan 15 1993 17:32`	5
	These charges are also added to your basis for the stock. Thus when you sell the shares, you will reduce your capital gains (increase capital loss) by this amount. Jake
355.3	Another question on DRIP's	HDLITE::HORTON	Ken Horton, KA1GFN	`Mon Jan 18 1993 10:07`	8
	Re : .2 Is this still the case where he did not pay the service charge. It was payed by the company. As .1 says he only pays the tax on it as income. Another question on DRIP's. If the company sell to you at a discount will there be any tax consequences or will this be handled when you actually sell. What will the cost basis on the stock be when it is sold.
355.4	DRIPS at a discount	YNGSTR::BROWN		`Mon Jan 18 1993 12:24`	8
	Hi Ken, DRIPS at a discount are treated EXACTLY LIKE the 15% ESPP discount; i.e. there's "income" on the day you buy it that is (supposed to be) reported that year. Later, when you sell, you use the sale price - buy price (where buy price is the non discounted FMV on the buy date). This my understanding; mileage may vary. Kratz
355.5	I would ask the DRIP's administrator!	CXCAD::BERZON		`Mon Jan 18 1993 12:32`	12
	>Is this still the case where he did not pay the service charge. It was >payed by the company. As .1 says he only pays the tax on it as income. Yes, that is my understanding of how that would work. > If the company sells to you at a discount will there be any tax > consequences or will this be handled when you actually sell? Depends on how the company treats it when they report this transaction to you. It could be treated as ordinary income or short/long term capital gains at the time of sale. Jake