Night moves
How can a stock suddenly start trading at a very different price than where it closed the day before? — V.B., Winona, Minnesota
It means that something happened overnight while the market was closed. Imagine that shares of Help Depot (ticker: RUOK) are trading around $75 per share when the market closes. If the company then reports blowout revenue and earnings, demand for the shares may build up. When stock trading resumes the next morning, the stock price probably won’t open at $75 and then rise gradually. Instead, it’s likely to just begin trading at a significantly higher level. That’s because many investors will now assign a greater value to the company, and the limited existing shares will have risen in value to meet the higher demand. Buyers are simply willing to pay more for the shares. The opposite can happen, too, of course, if there are negative developments about a company.
What’s a mock portfolio? — H.K., Jacksonville, Florida
A mock portfolio is a pretend one — ideal for beginning investors, and others who want to practice investing without putting any real money down. You can set one up on paper, or you can create an online portfolio at sites such as Finance.Yahoo.com. Then go through the motions of investing: Study companies, decide which ones to invest in, note that you’ve “bought” a certain number of shares at a certain price, and then follow the progress of the companies and the stocks. Over time, see how you do. A mock portfolio can serve as a kind of watch list, too, as it can alert you when the price of a stock you’re interested in falls to an attractive level.
What if your tax return is audited?
There are many scary words and phrases, such as “root canal,” “bedbugs” and “new transmission.” “Tax audit” is one of them — but you probably needn’t worry too much about that.
For one thing, relatively few tax returns get audited, and audit rates have been falling in recent years. During the tax agency’s fiscal year 2019 (which ended Sept. 30, 2019), only 0.45% of individual tax returns were examined — down from 1.11% in 2010.
Here’s what you need to know, though, in case you do get audited:
You need to respond to the notice. It will tell you which items are being questioned, so you know what documentation you need to mail in or bring to the audit in person. Most audits are handled completely by mail.
Stay focused. Bring or send in only what’s required, as additional items could raise further questions. Also, send copies of documents, not originals, in case any get lost. If you meet with an auditor, you’re essentially providing testimony. Keep answers brief — if possible, just say “yes” or “no.” Light banter about your new Porsche, for example, could raise some unwanted questions.
Replace any missing documents supporting your return. An auditor won’t skip items just because you can’t find them. Without supporting documents, that deduction you took may be denied.
Learn about your rights as a taxpayer: Read IRS.gov/taxpayer-bill-of-rights. For example, you have the right to hire someone (such as a lawyer, a certified public accountant or an IRS Enrolled Agent) to represent you in your dealings with the agency.
Most audits involve a simple question and can be easily resolved. You might reduce your chances of being audited in the first place by making sure your tax return is legible and complete. And keep good records of your income and expenses, as they can make dealing with an audit much easier. Learn much more at IRS.gov and Fool.com/taxes.