You should keep your expenses separate and I do not believe any "red flags" will be raised provided your trading activities are mostly profitable. Even if you are contacted, you will easily be able to explain your particular situation and provide documentation.
Regardless of which method you use, you will have to input the expense on the smart worksheet (in TurboTax) of Form 8829. Otherwise, the program will disallow the deduction (due to insufficient income).
Finally, I do not believe it is wise (or a good solution) to enter fictitious trades anywhere on your return.
