When a business owner has an overlap profit while using the current year basis, what happens to these profits?

When a business owner experiences an overlap profit while using the current year basis of accounting, these profits are typically deducted from future assessments. Overlap profits arise when a business transitions between accounting periods, particularly when the taxable profit calculated for a current year includes profits from a previous period because of timing differences in revenue recognition or expense matching.

When evaluating tax liabilities, allowing overlap profits to be deducted in subsequent years helps to avoid double taxation. This deduction ensures that business owners are not unfairly taxed on profits that have already been accounted for in earlier assessments. By carrying the overlap forward, the tax system maintains fairness and consistency in how businesses are taxed across different accounting periods.

The other choices reflect misunderstandings of how today's current year basis operates in the context of tax reporting and liabilities.