Profit Motive


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.

BREAKING DOWN '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.

  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 ...
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