> ## Documentation Index
> Fetch the complete documentation index at: https://getlago.com/docs/llms.txt
> Use this file to discover all available pages before exploring further.

# Taxes

> Why tax is never part of recognized revenue.

Tax isn't revenue. It's money you collect on behalf of a tax authority and owe back to them. So Lago keeps tax out of recognized revenue entirely. Recognized revenue is always the **pre-tax** amount.

## How tax is recorded

When you invoice, Lago splits the invoice into two pieces:

* The **fee amount**, which is recognized as revenue over the service period.
* The **tax amount**, which is booked to a **tax liability** at the moment the invoice is created. It's never recognized as revenue, and it isn't spread across the period.

A customer is invoiced \$1,200 for service, plus 20% tax.

| Line              | Amount         | Where it goes                        | Recognized as revenue? |
| ----------------- | -------------- | ------------------------------------ | ---------------------- |
| Service fee       | \$1,000.00     | Recognized over the service period   | Yes, pre-tax           |
| Tax (20%)         | \$200.00       | Tax liability, owed to the authority | No                     |
| **Invoice total** | **\$1,200.00** |                                      |                        |

Only the \$1,000 flows into recognized and deferred revenue. The \$200 sits as a liability until you remit it.

## When invoices are reversed

If an invoice is later voided, refunded through a credit note, or lost to a dispute, Lago reverses the tax in proportion to the amount reversed, separately from the revenue reversal. The tax you no longer owe comes back out of the tax liability, and the revenue you no longer earned comes out of recognized revenue. The two are always handled as distinct amounts.

## What this means for your reports

* The [Recognized Revenue report](/docs/guide/revenue-recognition/reports/recognized-revenue) shows pre-tax revenue only.
* Tax appears as a liability in the [Statements](/docs/guide/revenue-recognition/reports/statements), not as income.
* When you reconcile an invoice, expect recognized revenue plus deferred revenue to equal the **pre-tax** invoice amount, not the gross total.