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. Hobby Loss

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

    A financial benefit that is realized when the amount of revenue ...
  6. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  2. Entrepreneurship

    Top 10 Features Of A Profitable Rental Property

    Find out what factors you should weigh when searching for income-producing real estate.
  3. Taxes

    Tax Deductions For Rental Property Owners

    Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits.
  4. Taxes

    Sell Your Rental Property For A Profit

    Being a landlord can be taxing, especially when you want to sell. Find out how to reduce your burden.
  5. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  6. Options & Futures

    Tips For Renting A Vacation House

    Follow these nine steps to get a picture-perfect summer shack at a great price.
  7. Economics

    EU Probes Tax Laws To Catch Corporate Cheaters

    Recently, the EU has launched an investigation into tax deals between Amazon and the country of Luxembourg.
  8. Taxes

    What is Value-Added Tax (VAT) and who pays it?

    Learn about the definition of value-added tax, the necessary circumstances that require a business to pay it and when a business is exempt.
  9. Taxes

    What is the difference between gross income and earned income?

    Being able to distinguish between earned income and gross income is an important tool in preparing for and filing your individual tax returns each year.
  10. Taxes

    What is the difference between gross income and taxable income?

    Understanding common tax terms including gross income and taxable income can help individuals navigate tax accounting in an efficient way.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center