W2 and Business deductions (Schedule C)

Last year, I worked for 2 companies, One as an employee and
one as a contractor, I received a W2 from my "employer" and
a 1099 from the other. I was able to deduct all my expenses
against my 1099 income.

This year:
All I received was a W2 from one employer because (no 1099):

I started my own company, didn't really get going, so I made
no money. I did spend a lot of time and money buying
equipment, designing ads, , giving job estimates, etc. (I am
still in business and will do well this year).

I have an EIN number and state licenses. I've spent over 100
hours, and did more than 50% of the work (setting up the
business). I believe this qualified my business as
materially active (not passive, I forget the exact term).

Can I deduct my expenses (?) against my W2 income?
I spent far more than I made, can I also carry over my loses
for 2005?

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