It's not going specifically against your W2 wages. It is just reducing the total income on your return. Even if you didn't have any W2s you could take the loss.
As I said above....
If you are not showing a loss on Schedule C.
Some expenses, such as home office or section 179 depreciation can only be used to reduce your schedule C taxable income to zero, and not to create a loss. Excess deductions for these carry over to the next year. And you have to answer yes to both questions about exclusive and regular use, not just one. The area of your home office must be used regularly and exclusively for business to deduct it.
See Schedule C instructions http://www.irs.gov/pub/irs-pdf/i1040sc.pdf
Here is some IRS reading material……
IRS information on Self Employment
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center
Pulication 334, Tax Guide for Small Business
http://www.irs.gov/pub/irs-pdf/p334.pdf
Publication 535 Business Expenses
http://www.irs.gov/pub/irs-pdf/p535.pdf
What Self Employed expenses can I deduct?
https://ttlc.intuit.com/questions/3398950-what-self-employed-expenses-can-i-deduct
