I live in the United States, so what I do applies to the US. Whatever your country’s rules are might be different.
First of all, I go to H&R Block to do my taxes.
I fill out tax vouchers. I pay the federal taxes and state taxes. Some states don’t require state taxes, but where I live, they do. My H&R Block representative told me if I made over $30K a year, I should start doing vouchers, which are quarterly payments to the state and federal government based off an estimate of what your annual income will be. This can be tricky because you’re having to guess what you’re going to make, but if you are way off, you can make up for any discrepancies in your January payment.
You will want to keep a copy of the check when it’s cashed by the federal and state governments for your records to prove you paid them. I go online to my back account and print out the copy of the check (front and back) with the government’s stamp to prove they deposited it.
Have a Separate Checking Account for Writing-Only Income
The easiest way to keep track of your income is to have every place you upload books to put all royalties into a checking account that is designated for writing-only income. So if you use Amazon KDP, PubIt, Smashwords (PayPal), etc, have all of that income go directly into that checking account. This will make life easier for you down the road, especially since Amazon never sent out a form for their International stores. I got the 1099 for the U.S. store, but I didn’t for the UK and German stores where I made a few sales.
It’s a good idea to print out your income deposits every month. That way you have it along with the 1099s sent out to you.
Have a Folder for Everything
I keep an expanded file with dividers where I put my receipts during the year. In this file, I keep my vouchers with proof the government deposited them. I also keep print outs of my income when it comes into the checking account. I’ll also put the 1099s in it when those come in around February of next year. So this is the “everything file”.
In this file should be enough dividers where you can include income, vouchers, and expenses. Expenses will be everything you need to purchase for writing-related expenses. This is not a comprehensive list, but some expenses will be writing software (ex. Word 2012), computer, ereader (for proofing purposes), paper, printer ink, stock photos for covers, cover artist fees, website/blog fees, editors, proofreaders, ads, conference fees plus travel expenses related to the conferences, contests entered, etc. Keep all receipts in a divider or two.
When tax time comes, you go in with your file and hand out the information as your tax representative needs it. If you do your own taxes, then the information will also come in handy. Either way, by keeping everything in one location will save on time and make filing taxes much easier than trying to dig it all out at that time.