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The US Loses Out On $1 Trillion a Year Due to Tax Cheats, IRS Estimates
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As part of its oversight role, Congress is constantly assessing the economic health of the United States, so hearing from Internal Revenue Service Commissioner Chuck Rettig that the country may be losing up to $1 trillion a year in evaded taxes is an obvious cause for concern. This estimate is several times the 3-year-cumulative amount of $441 billion that the agency had previously asserted. In his meeting with the Senate Finance Committee, Rettig said “I think it would not be outlandish to believe that the actual tax gap could approach and possibly exceed $1 trillion per year.” He listed several tax evasion techniques that the agency had not included or even been aware of. Among them were new technologies such as the use of cryptocurrency, as well as more familiar issues such as illegal income, underreporting from pass-through businesses, and offshore tax evasion. Lawmakers hearing of the disparity between what is collected and what should be collected are vowing to take action. According to Senate Finance Chairman Ron Wyden (Oregon – D) the IRS commissioner’s news should serve as a “wake-up call” to the remarkable revenue losses the government is suffering. He anticipates that his colleagues will take action to facilitate more aggressive tax enforcement, indicating that conversations he has already had with Senator Mike Crapo of Idaho, his committee’s top Republican, indicate bipartisan support. Other senators who have voiced concern include Massachusetts Democratic Senator Elizabeth Warren, who is planning a bill to provide mandatory, steady funding for auditors for the IRS budget; and Ohio Republican Senator Rob Portman, whose focus is on tax-dodging cryptocurrency enthusiasts. Presidential Action In addition to congressional action, President Joe Biden has included an extra $900 million in his budget proposal to provide for expanded audits and has included corporate tax enforcement in his $2.25 trillion infrastructure plan. He is also promoting additional individual tax proposals. Responding to questions about what his agency needs to improve enforcement, Commissioner Rettig pointed to 17,000 enforcement-related positions lost over the last ten years and indicated that with $1 billion more in funding, the agency could engage in a multi-year process to update outdated computer systems to flag fraud and tax evasion and hire an additional 4,875 front-line audit personnel. “We want to get there, but we do need your help,” he said. Pointing to the fact that roughly 99% of taxes subject to automatic withholding and reporting are paid while only 45% of those not subject to this oversight are paid, he said that shoring up regulations overseeing tax-return preparers and tax-reporting requirements would close the gap and serve to minimize fraud. High-Income Individuals and Corporations Hide the Most According to a recent study, the richest 1% of the American population fail to report or pay taxes on one out of every five dollars that they earn. This evasion is made possible by the fact that income from partnerships, limited liability corporations and other pass-through entities is not automatically withheld in the same way that is done for wage earners. The study’s authors, which include two IRS officials, concluded that eliminating that method of shielding income, as well as offshore structures, would increase the amount of money collected by the IRS by approximately $175 billion each year.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
