You should have received a Form 1099-R from the trustee of the 401(k) for the distribution you received from the plan.  This is the income in your Federal income tax return.  TurboTax has a special entry interview for Form 1099-R in the Wages and Income section of the program.  Pay special attention for the code number in Box 7.  This will determine some of the tax issues with your distribution.  If you are under age 59-1/2 at the time of the distribution, it is likely that you will not only owe regular income tax on the distribution but also potentially a 10% early distribution penalty.  There are several exceptions to that penalty so be sure to go through that TT screen in the interview to see if any of the exceptions apply to you (using the funds to start a business is NOT one of the exceptions but separating from service from the employer at age 55 or older may be one of them).

The distribution is NOT business income just because you invested it in the business.  As stated above, it is ordinary income and is NOT included in the business section of your return.  As far as the business is concerned, it is a capital contribution which is not a taxable event for the business.