The starting point for computing your income tax is, of course, your gross business receipts or sales. From this you will subtract your cost of goods sold (if any) to arrive at your gross profit. In this section we'll discuss some rules you need to know about exactly what is and isn't reportable business income, and the distinctions between various types of income that must be reported in different places on your tax forms.
The general rule is that any income you receive that's connected with your business is considered "business income" that should be reported on your business tax return. For sole proprietors, that means on Schedule C or C-EZ. Income is considered "connected with your business" if it's clear that the payment would not have been made if you did not have the business.