Sole Proprietorship
Self-Employed Books

A Sole Proprietorship is the easiest and least expensive way to form a business.  All you basically have to do is get a local business license, a state sales tax permit, and go to work. States differ slightly on requirements for licensing and permits, but there are no special sole-proprietorship forms or anything you need to fill out for the IRS to get the business underway.

Resource:  Sole Proprietorship: Small Business Start-Up Kit provides everything necessary to set up a small business sole proprietorship in all fifty states. Amazon.com

You & the Business are One

A business set up and operated as a sole proprietorship does not exist apart from its owner.  Though you are wise to keep separate records for the business, the bottom line profit or loss is yours and is reported to the IRS on your individual tax return. The business does not file a separate return (it is not its own entity).

Records to Keep

Accounting and recordkeeping for a sole proprietorship is just like that of any business structure, just a little less complicated. A separate bank account for the business is a good idea and you should, at minimum, keep track of your business related receipts and disbursements, maintain payroll records (if you have employees), and keep a list of business assets.

The IRS doesn't care what system you use to account for income and expenses, just that you do it and that the records are available to them for auditing. You can use a paper-and-pencil method or choose to use accounting software which is widely available, easy to learn, and often times more accurate than a manual system.

Resource:  Tax Savvy for Small Business: Year-Round Tax Strategies to Save You Money covers recordkeeping with tax savings in mind. Amazon.com

Other Things to Note

You will be responsible for paying self-employment taxes and you may be required to make Estimated Tax payments.