Click on the green "New Category" button to add a new category.
Screenshot of Category Settings
Fill in the category name. By default, the category name will be in all caps to provide consistent formatting for your categories. If you wish to change this, you can save the category and reopen it to edit the capitalization of your category names.
Next, select the tax for your category. Tax rates are configured in the Tax Settings.
To finish, select save in the bottom left corner to finish creating your category.
There are additional customizations that can be set up for individual categories. For a full break down visit the Customize a Category section.