What are taxes?

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Taxes are payments required by governments to fund essential services and infrastructure that benefit everyone. They’re the backbone of public goods like healthcare, education, transportation systems, and much more. Since taxes are an unavoidable part of daily life, understanding how they work is crucial for managing your finances responsibly.

Taxes come into play in various aspects of life - whether you’re earning income, owning property, or purchasing goods and services. Having a basic knowledge of taxes not only helps you plan your finances better but also ensures you avoid costly mistakes or penalties.

It’s important to note the seriousness of paying taxes on time. Failure to meet your tax obligations can lead to severe consequences, including fines and even imprisonment, with sentences ranging from 1 to 8 years. 

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Types of taxes

   1. Income Tax
     • What it is: A tax on your earnings from salaries, freelance work, or investments.
     • How it works: Calculated as a percentage of your total income.
     • Rate: A flat 10% tax on all income, regardless of the amount.

   2. Value-Added Tax (VAT)
     • What it is: A tax added to most goods and services you purchase.
     • How it works: Usually included in the price you pay for products or services.
     • Rate: The standard VAT rate is 20%.

   3. Property Tax
     • What it is: An annual tax on the ownership of property such as land, homes, or commercial buildings.
     • How it works: Based on the tax-assessed value of the property (value assigned by the government).
     • Rate: Typically ranges from 0.1% to 0.45%.

   4. Social Contributions
     • What it is: Money taken from the income to fund pensions, healthcare, and social welfare programs.
     • How it works: Shared between employees and employers.
     • Rate: Combined, the contributions range from 32.7% to 33.4% of an employee's salary.

   5. Corporate Tax
     • What it is: A tax on the profits earned by businesses.
     • How it works: Applies to all registered companies generating income.
     • Rate: Flat 10% for most businesses and at least 15% for large international companies.

   6. Excise Taxes
     • What it is: Taxes applied to specific goods like fuel, alcohol, and tobacco.
     • How it works: Often factored into the retail price.

Common tax mistakes to avoid

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• Failing to Report All Income:
   All sources of income must be declared.

• Not Keeping Receipts:
   Always keep receipts for important expenses.

• Missing Deadlines:
   Filing your taxes too late can result in penalties.

• Overlooking Tax Credits:
   Research any credits or deductions (costs or expenses you can subtract from your total income to lower the         portion of income that is taxable) you’re eligible for to lower your total taxes owed.


WARNING:
The information provided is applicable for the Bulgarian tax system! It may be partially or fully inaccurate for other countries and regions!

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