Tax reporting for Universal accounts

This article explains what the 'Tax Return Box' and 'Allowable for Tax' settings mean when you set up a new spending category or edit an existing one in a 'Universal' FreeAgent account.

The 'Tax Return Box' drop-down menu

When you set up a new spending category or edit an existing one, you’ll be asked to choose an option from the 'Tax Return Box' drop-down menu.

These correspond to the box names on the US 1040 individual tax return.

Choose the name from the list of boxes. Pick the one that’s most appropriate for the category you’re setting up.

For example, if you run a cupcake-making business and you want a new category for fuel for your delivery van, you’d choose the "Car and truck expenses" box.

The 'Allowable for Tax' option

You also need to choose whether this category is allowable for tax or not.

The box is ticked by default. Leave the box ticked if the category is allowable; untick it if it’s not allowable.

'Allowable for tax' refers to whether you’re allowed to deduct this expense from your income when you’re calculating out the profit that you need to pay tax on.

Check with your local tax authority or an accountant if you’re not sure whether a business expense is allowable.

Please note that if you set up an admin expense with the ‘Meals and Entertainment’ Tax Return Box category selected within a Universal account type and untick the ’Allowable for Tax’ box, FreeAgent will exclude all transactions categorised to this category from your Sales Tax report, irrespective of the tax rate selected.