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. Material Participation Tests

    Material participation tests review taxpayer business activity ...
  2. Freudian Motivation Theory

    Freudian motivation theory posits that unconscious psychological ...
  3. Form 3903

    A tax form distributed by the Internal Revenue Service (IRS) ...
  4. Profit

    A financial benefit that is realized when the amount of revenue ...
  5. Form 8949

    An Internal Revenue Service form implemented in tax year 2011 ...
  6. Tax Deduction

    A deduction from gross income that arises due to various types ...
Related Articles
  1. Personal Finance

    A Motivational Strategy to Pay Off Debt

    This debt payment strategy may come as a surprise, but studies show it works.
  2. Taxes

    Increase Your Tax Refund With Above-The-Line Deductions

    Find out about these deductions and how you can use them to lower your tax bill.
  3. Investing

    Understanding Profit Metrics: Gross, Operating and Net Profits

    Rather than relying solely on a company's net profit figures, seasoned investors will often look at gross profit and operating profit as well.
  4. Taxes

    Start Over With The IRS

    If you're struggling to pay back taxes, try a fresh start with the IRS. They really can help.
  5. Taxes

    An Overview of Itemized Deductions

    Itemized deductions will mostly stay the same for 2017 tax year (medical deductions improve under the new tax bill). Big changes start in 2018.
  6. Taxes

    20 Tax Changes You Need To Know About

    Don't miss out on the tax changes. Here's a list that you need to know about.
  7. Taxes

    5 Expenses You Want to Be Deductible But Aren't

    Here are five expenses that many taxpayers often try to claim only to find out that their deductions are denied.
  8. Taxes

    8 Little-Known Tax Deductions And Credits

    These little-known tax deductions can lead you to finding your own unique expenses that you didn't know you could claim.
  9. Financial Advisor

    How to Reduce Real Estate Investment Taxes

    Real estate tax law is not the same for rental properties as it is for residences. These tips can help you pay less in taxes.
  1. What is the difference between profitability and profit?

    Calculating company profit and profitability are not one and the same, and investors should understand the difference between ... Read Answer >>
  2. What is more important for a business, profitability or growth?

    Discover how both profitability and growth are important for a company, and learn how corporate profitability and growth ... Read Answer >>
  3. How do operating expenses affect profit?

    Explore how operating expenses and the cost of goods sold can either increase or decrease a company's profits on an income ... Read Answer >>
Hot Definitions
  1. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  2. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  4. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  5. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center