They get divided proportionately. Since her licencing and her CE are required for both facets (self-employment as well as through employer), it needs to get divided between the two. For this purpose, you may use her gross income to determine the amount that may be deducted against her self-employment. For instance, if she earned 30,000 through the spa and 10,000 of gross self-employment income before any expenses are subtracted out, she may claim 25% of the expenses towards her self-employment income. The remaining expenses go toward her unreimbursed employee expenses. (Which are subject to 2% of AGI and the itemized deduction threshold).
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