Question: I am reinvesting dividends by buying additional shares of stock. For income tax purposes, how are these shares priced when sold? Is the total cost averaged out or must each reinvestment be entered separately to arrive at capital gain or loss?

Answer: IRS regulations require that you track and report each purchase separately--even for fractional shares obtained under a dividend reinvestment plan.

(An exception is made for mutual fund shares left on deposit in an account maintained by the custodian. In that case you may use an average-cost method. See IRS Publication 550 for details.)

If you sell only part of your holdings, you must identify to your broker--usually by purchase dates--which shares you wish to sell. (If you can't identify the specific shares sold, then you use what is essentially a "first-in, first-out" method.) Then you make the same individual identification on Schedule D to document the partial disposition.

But if you sell the entire holding at one time, the IRS will accept two one-line entries: a short-term gain or loss for the total of all shares owned one year or less, and a long-term gain or loss for all the rest.

In the case of a total sale the end result is the same whether you identify each individual purchase or combine everything into the two groups. However, you should have in your files the individual date in case the IRS should ask for the supporting documentation.

If you're talking about shares in a public utility, remember that the 1981 tax act changes the rules. If the dividend shares qualify, you may exclude up to $750 of such dividends from income (up to $1,500 on a joint return.)

Shares received in this fashion have a zero cost base for tax purposes, so the entire proceeds of a later sale are taxable. But if you have owned the dividend shares for more than a year they still qualify for long-term capital gains treatment, so the date of acquisition becomes particularly important.

Q: I am concerned about your article a few months ago on the disposition of unnecessary papers. My insurance agent says we should keep receipts or cancelled checks for all items purchased for our homes to support our claim in case of a loss. In your experience what records are necessary for insurance purposes?

A: Fortunately we have very little experience. We have had only one occasion for a major insurance claim--a few years ago, when we rolled our travel trailer on I-95 in North Carolina and totaled it.

The major loss, of course, was the trailer itself, which was covered by our auto insurance. But we also lost a couple of bicycles, kitchenware, appliances and linens--all covered by our homeowners policy.

To document the loss we were asked only to provide a list of items with the date of purchase and original cost for each.

I hesitate to state categorically, on the strength of this one experience, that a log of purchases will be sufficient. I suggest you be guided by the advice of your own agent. (But I must confess that we still don't keep receipts for everything we buy, although we do have paperwork for major items.)

In any case, I strongly recommend that you have photographs of every room in your home (and trailer, if you have one), as well as pictures of special items like silverware, jewelry and antiques. This is a worthwhile project for everyone, renters as well as homeowners.

Very important: None of the paperwork--receipts or log, photos and any appraisals--should be kept in the same house as the items themselves. A safe deposit box is a good place, or the home of a relative or friend--someplace where the records won't be lost if a fire or tornado should destroy the home.

Q: If an individual is self-employed and has a Keogh retirement plan, he can also establish a tax-deferred IRA. My question: Can an individual currently covered under an SEPP also establish an IRA? A: Yes. If you are covered by a Simplified Employe Pension Plan where you work, you are considered under the new law to be a participant in a qualified employer plan and therefore eligible to establish a separate IRA as well.