WHY ARE CELEBRITIES INVESTING IN SPACS? SHOULD I CONSIDER IT, TOO?
This past year, the volatility of the pandemic and independent Reddit-based investors bidding up shares of GameStop has turned Wall Street toward a trend of nontraditional investing and trading — and it continues. Starting as early as last summer, celebrities and big-time Wall Street players began investing more and more money in special purpose acquisition companies (SPACs). SPACs are shell corporations with no assets. A pool of investors sets up one of these companies with the sole purpose of raising money through an initial public offering (IPO) to eventually acquire a private company and take it public. SPACs don’t have products or services. Its only asset is typically the money raised in its own IPO. SPACs are usually given two years after its IPO to find a company to acquire, although investors rarely know what business the SPAC will acquire.
(Shareholders do have to vote to approve the acquisition.) As CNBC explains, once acquired, shares of that business can be swapped for the SPAC shares (a SPAC merger), or investors can redeem their money plus interest. If a business cannot be acquired within an established time frame, the investors get their money back plus interest. Sounds lucrative, right? It can be, but not for everyone. For a long time, SPACs were seen as last-ditch efforts on the part of small start-ups that couldn’t afford to raise money on the open market. Many investors argued that if a business couldn’t raise these funds, how well could they actually perform once public? Plus, CNBC also reports that a five-year study found the average return on investment from SPAC mergers was generally less than returns from IPO investors.
This should make investors wary, especially since they have no idea which company a SPAC might acquire. The risk is much higher than traditional investing. However, recent SPAC acquisitions of big corporations like DraftKings, the online sports gambling website, and a space exploration company, Virgin Galactic, have some investors hopeful. This could shift the thinking on the usefulness of SPACs and attract larger businesses to this arrangement. A SPAC may or may not be right for you, but that’s your decision to make. If you want to learn more about SPACs, speak with a trusted financial advisor to assess your risk.
What You Need to Know for 2020 and 2021
UNEMPLOYMENT AND YOUR TAXES
The unemployment system is complicated, and the tax system is even more complicated. So, it’s no surprise that when the two come together, things get dicey. In my line of work, I deal with a lot of folks who are confused about how getting unemployment payments impacts what they owe the IRS. To demystify it a little bit, I’ve put together a short guide. IF YOU WERE UNEMPLOYED IN 2020 Last April, the unemployment rate jumped to 14.8%. If you lost your job last year, you probably received unemployment payments from the government. These payments are taxable just like other income. However, the American Rescue Plan Act of 2021 allowed an exclusion of unemployment compensation of up to $10,200 for individuals (or $10,200 per spouse for married couples filing jointly) for the 2020 tax year. That means you didn’t have to pay tax on the first $10,200 of unemployment payments you received last year!
If you’ve already filed your 2020 tax return, that exclusion should have been automatically taken into account. You won’t have to file an amended return unless “you now qualify for deductions or credits not claimed on your original return.” If you’re confused about this or haven’t filed yet, give me a call, and I’ll look over your return to make sure you’re okay. IF YOU WERE UNEMPLOYED IN EARLY 2021 As of this writing, unemployment checks received in the 2021 tax year are still fully taxable. It’s possible another exclusion will come down the pipe, but just in case it doesn’t, I’d suggest putting about 10% of the amount of unemployment you received into a savings account so you have it on hand to pay next year’s taxes. IF YOU’RE UNEMPLOYED RIGHT NOW The unemployment checks you're getting are taxable, so save 10% of every check if you can or
make a plan to save up that amount before April 15, 2022. You can ask for 10% to be withheld from your checks if that makes it easier. Either way, looking ahead will save you from a nasty surprise on Tax Day!
Still have questions or know someone who needs help with this? Send them my way.
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