The loss is deductible against your other and you will pay no self employment tax, since you have no profit. The business you describe (a small sole proprietorship dependent on your labor) is not the kind that gets valued.
Bottom line for you: is that your company is doing it right. You do not have the option of reporting that income anywhere else except line 7 of form 1040 (or 1040A). You do have the option of asking them to pay you as an independent contractor. But don't be surprised if they say they are not allowed to do it.
