But the IRS will allow you to deduct your self-employment expenses against your 1099-NEC income. The money you were paid on Form 1099 gets reported on Schedule C - you can deduct expenses related to that income on the same Schedule C. You can't include expenses you incurred for the W-2 income, but you can deduct the expenses related to the 1099 income.
I think you are having an issue/question with the Qualified Business Income Deduction. You can take all the other self-employment deductions, but the QBI deduction is tricky. If your Schedule C business meets the definition of a trade or business under Section 162, it qualifies for QBI on that income, with some exceptions. Income you receive from a former employer is generally not eligible for the deduction; that is why answering YES in TurboTax to the 'former employee' question disqualifies you for the deduction. However, the income may still qualify. Here is the IRS language that explains whether or not you should indicate this income is from a previous employer. See page 73.
WARNING
The IRS further states elsewhere in the ruling that there can be substantial penalties if you claim this income as qualified QBI and the IRS, upon audit, determines it's not.
(3) Presumption that former employees are still employees--(i) Presumption. Solely for purposes of section 199A(d)(1)(B) and paragraph (d)(1) of this section, an individual that was properly treated as an employee for Federal employment tax purposes by the person to which he or she provided services and who is subsequently treated as other than an employee by such person with regard to the provision of substantially the same services directly or indirectly to the person (or a related person), is presumed to be in the trade or business of performing services as an employee with regard to such services. This presumption may be rebutted upon a showing by the individual that, under Federal tax law, regulations, and principles (including common-law employee classification rules), the individual is performing services in a capacity other than as an employee. This presumption applies regardless of whether the individual provides services directly or indirectly through an entity or entities.
The answer to that question in TurboTax will determine whether the deduction is allowed or not.
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