Profit Motive

AAA

DEFINITION of 'Profit Motive'

The intent to achieve monetary gain in a transaction or material endeavor. Profit motive can also be construed as the underlying reason why a taxpayer or company participates in business activities of any kind. Profit motive must be determined for some transactions to determine the deductibility of any expenses involved.

INVESTOPEDIA EXPLAINS 'Profit Motive'

For taxpayers who participate in rental activities, profit motive must be determined in order to claim rental expenses. The IRS may try to prevent a taxpayer from claiming rental losses if a profit motive cannot be proved. Profit motive can be established by proving that a profit was realized in at least three out of the last five years. Profit motive is also what separates a hobby from a business in the eyes of the IRS; hobby losses are nondeductible because there was no intent to make a profit from any gains.

RELATED TERMS
  1. Income

    Money that an individual or business receives in exchange for ...
  2. Imputed Cost

    A cost that is incurred by virtue of using an asset instead of ...
  3. Not For Profit

    A not for profit organization is a type of organization that ...
  4. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
  5. Hobby Loss

    A non-deductible loss incurred as a result of doing an activity ...
  6. Profit

    A financial benefit that is realized when the amount of revenue ...
Related Articles
  1. Tips For The Prospective Landlord
    Home & Auto

    Tips For The Prospective Landlord

  2. Top 10 Features Of A Profitable Rental ...
    Entrepreneurship

    Top 10 Features Of A Profitable Rental ...

  3. Tax Deductions For Rental Property Owners
    Taxes

    Tax Deductions For Rental Property Owners

  4. Sell Your Rental Property For A Profit
    Taxes

    Sell Your Rental Property For A Profit

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center