How are losses from previous years treated for current year profits?

Losses from previous years can indeed be carried forward to offset future taxable profits, making this the correct choice. This means that if a business incurred losses in a prior tax year, it has the option to apply those losses against its profits in subsequent years. This provision is particularly beneficial for companies that may experience fluctuating profits over time, as it helps to reduce taxable income during profitable years, thereby lowering their overall tax liability.

The ability to carry forward losses supports businesses by providing a mechanism to mitigate the impact of past losses on their current tax positions. It reinforces the principle of tax equity, allowing businesses that have suffered economically in the past to recover some financial ground as they become profitable again.

The other options do not align with the general treatment of losses under tax law. Ignoring losses completely eliminates any potential tax relief they could offer (the first option). Claiming the losses immediately to reduce current profits (the third option) does not usually apply, as losses from prior years cannot affect current year calculations in that direct manner. Lastly, the assertion that losses are written off and cannot be used (the fourth option) contradicts the provisions that allow carry-forward of losses.