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Yes, you are required to report all income and expenses for your business on your tax return.
Please see How do I report income from self-employment? to enter your income and see What self-employed expenses can I deduct? to be sure you capture all the expenses you can report.
as a sole proprietor - schedule C - you never pay yourself a salary - you just report the income and expenses. the money is yours to use any way you want. there is no additional tax for taking money out or putting it in. should yo decide to convert to an S-Corp consult with a tax pro first because there are many more rules you have to follow.
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