You should track all income and expenses, as well as any other records needed to document other deductions you might be making. Income should include a report of all invoiced or billed payments. If you intend to separate business income from personal income, you must document all withdrawals made to your personal accounts. It is also advisable to withdraw a set amount each month and to diligently separate personal versus business spending.
Documenting expenses should be done in a spreadsheet, logbook, or another organized method. You should also save all receipts, pay stubs to workers, and bills or invoices related to business expenses. Generally, you can simply report your list of expenses, but in the event of an audit or a request for more documentation you should be prepared to justify and prove any expense made.