The amount of inheritance is not taxable or reportable on any tax return. Ever. There are exceptions and if any apply to you, then you'll receive the appropriate tax reporting document at tax time. For example, if you inherited that money from an IRA, then it's taxable. But generally the taxes are paid by the estate of the deceased prior to being distributed to heirs, and what you get is the after tax amount.
Now what you used that money for is totally and completely irrelevant. However, using any of "your" money (of which that inheritance is in fact, *your* money) to start a business does result in deductible expenses, such as start-up expenses. Where that money came from is irrelevant. I can still qualify as a business deduction for you. Wouldn't matter if you found it on the street, earned it at a W-2 job, robbed it from a bank (if you don't get caught of course), or anything else.
