Saturday, February 12, 2011

Profit Motive


What Does It Mean?
What Does Profit Motive Mean?
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 Says
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.

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