Issue 1: Maintain seperate accounts for business and personal to avoid a real mess. You made your point exactly in this situation: "How would IRS know that the money I spent for my business is from the money I made?" (although see issue 2). Issue 2: Your expenses are the direct money you spend for things and services, not necessarily the amount you take out of your account. For example, you may take out $100 to sepnd on postage, but actually only seond $50 on postage. The other $50 you spend later on something else not related to your business. Your expense in this case is $50, not $100.
Issue 3: Is your freelancing business the same as your "business overseas?" If not, then exepenses for one business do not directly offset revenue from another business.
Ditto what FH said about talking to an accountant (or tax preparer).
And last, but not least, Welcome to WebmasterWorld! :)
