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. Profit

    A financial benefit that is realized when the amount of revenue ...
  5. Hobby Loss

    A non-deductible loss incurred as a result of doing an activity ...
  6. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
RELATED FAQS
  1. What are some of the arguments against a value added tax (VAT)?

    Critics of the value-added tax, or VAT, system say that not only is it costlier to implement compared to the ad valorem system, ... Read Full Answer >>
  2. What are the differences between regressive, proportional and progressive taxes?

    Tax systems fall into three main categories within the tax code: regressive, proportional and progressive taxes. Regressive ... Read Full Answer >>
  3. What's the difference between the marginal tax rate system and a flat tax?

    In modern economics, there are two main types of tax systems: marginal tax rate and flat tax rate. Under a marginal system, ... Read Full Answer >>
  4. Is the marginal tax rate a progressive tax?

    The marginal tax rate is a type of progressive tax system that imposes a higher income tax rate on people with higher incomes, ... Read Full Answer >>
  5. Are marginal tax rate schemes more fair than flat taxes?

    The proper framing of the question should be, "To whom is a marginal tax rate fairer," as progressive, marginal, and flat ... Read Full Answer >>
  6. What deductions, credits and exemptions depend on gross income calculations?

    The greatest challenge in determining your total tax liability stems from an incomplete understanding of what income figure ... Read Full Answer >>
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. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  8. Mutual Funds & ETFs

    ETF Dividends: The Lowdown on How They're Taxed

    Here's the rundown on how different ETF dividends are taxed.
  9. Professionals

    Phew! IRA Tax Fixes Possible Through Oct. 15

    Tax season ended April 15 but you've got until Oct. 15 to correct errors, including those to do with Roth and traditional IRAs.
  10. Taxes

    What's an Audit?

    An audit is an objective examination of accounting records that makes sure the records are a fair and accurate representation of the transactions they claim to represent.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!