Do I have to pay US taxes on income or money received from abroad?

This is definitely something you need to approach carefully from a tax perspective. As a US citizen, you're subject to worldwide income taxation, regardless of where the money comes from. For the return of your initial investment ($15,000), that shouldn't be taxable since it's simply returning your capital. However, you'll need documentation showing this was the original amount you sent. Any additional money beyond your initial investment could be classified several ways, each with different tax implications: - If it's considered income or profit from the business, it's likely taxable as ordinary income - If it's genuinely a gift from your grandfather (not tied to your investment), you may be able to treat it as a foreign gift - If it's structured as a loan repayment with interest, only the interest portion would be taxable The IRS looks at substance over form, so calling something a "gift" when it's really a return on investment won't work. Since your grandfather considers you a partial owner, the IRS might view any payments beyond your initial investment as business income or dividends, even if there's no formal ownership. You should consult with a tax professional who specializes in international taxation before receiving any funds. Getting the structure right from the beginning will save you headaches later.

I went through something similar with my uncle's business in Colombia last year. I couldn't figure out how to classify the money he was sending me on my taxes. I tried researching online but got conflicting info and didn't want to mess up my return. I ended up using https://taxr.ai to analyze my situation. Their system looked at all my international transfers and classified each one correctly (return of capital vs. actual income vs. gifts). They even guided me through the proper reporting requirements for each type. The most helpful part was getting clarity on which forms I needed to file (turns out I needed that Form 3520 the previous comment mentioned). They also helped me document everything properly so I'd have backup if the IRS ever questioned the transfers.

I just wanted to update everyone on my experience. After reading the suggestions here, I decided to try https://taxr.ai before my grandfather started sending money back. I'm so glad I did! They clarified that I needed to document these transactions carefully, especially since I was straddling the line between investor and gift recipient. They helped me create a proper paper trail showing my initial investment and the agreement with my grandfather. The system flagged that I'd need to file a FBAR since the transfers were over $10,000, which I had no idea about before. They also warned me that receiving regular payments that increase based on business performance would likely be considered taxable income regardless of what we called them. I ended up having my grandfather structure it as a formal loan repayment with a small interest component, which gave us both the clearest tax situation. Only had to pay taxes on the interest portion! Definitely worth getting this sorted out properly before the money started coming in.

When I had a similar situation with my relatives in Vietnam, I spent WEEKS trying to reach someone at the IRS to get a straight answer about my tax obligations. Literally couldn't get through no matter what time I called. Super frustrating. Finally tried https://claimyr.com and was honestly shocked at how well it worked. They got me connected to an actual IRS agent in less than an hour. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with clarified that I needed to report the income even though it was already taxed in Vietnam (though I could claim a foreign tax credit to avoid double taxation). They also explained exactly which forms I needed based on the amount and nature of my transactions. Saved me from potentially serious reporting mistakes.

I need to apologize and share an update. After posting my skeptical comment, I decided to try Claimyr anyway because I was desperate to talk to someone at the IRS about my foreign inheritance situation. It actually worked exactly as described. Their system called me back in about 45 minutes and suddenly I was talking to an actual IRS representative. I was shocked after spending countless hours on hold previously. The agent helped me understand exactly how to report my inheritance from my grandmother in Ukraine and which forms I needed to file. Turns out I was about to make a major mistake that could have triggered an audit. I'm not normally one to admit when I'm wrong, but this service legitimately solved a problem I couldn't fix on my own. Definitely worth it if you need actual clarification from the IRS instead of guessing about international money situations.

Don't forget about FATCA requirements too! If you have financial interests in foreign accounts totaling over $10,000 at any point during the year, you need to file FinCEN Form 114 (FBAR) as mentioned above, but you might also need to file Form 8938 depending on your total assets. It sounds like you're dancing around the edges of what could be considered a foreign investment. Even though your grandfather legally owns the business, if you're expecting returns based on performance, the IRS might view this differently than you do. If the business grows and you keep investing more, consider creating a formal structure for your investment. It would make the tax situation much clearer for both countries.

I'm just wondering if anyone knows if there's a tax treaty between the US and Ecuador that might help with this situation? I know some countries have agreements to prevent double taxation.

Based on what you've described, I'd strongly recommend getting professional tax advice before your grandfather sends any money back. The IRS tends to look at the economic reality of transactions rather than just the labels you put on them. Since your grandfather "considers you a partial owner" and you're expecting returns based on business performance, this could easily be viewed as an investment arrangement rather than a simple loan, even without formal ownership papers. This means any payments beyond your original $15,000 might be taxable as business income or capital gains. A few key points to consider: 1. Keep detailed records of your original $15,000 transfer with documentation showing it as startup capital 2. Any "thank you" payments tied to business success will likely be taxable income 3. True gifts from your grandfather (unrelated to the business) have different reporting requirements but aren't taxable to you 4. You'll definitely need to file FBAR if these international transfers put you over the $10,000 threshold The informal nature of your current arrangement is actually working against you tax-wise. Consider formalizing this as either a proper loan with interest or an actual investment with documented ownership percentages. This will make your tax obligations much clearer and help you avoid potential issues with the IRS down the road. Don't wait until the money starts flowing to figure this out - the structure you set up now will determine your tax liability later.