Do I have to pay taxes on income received from abroad if my relative's foreign business returns my investment?

Thanks for the info! So if my grandpa sent me like $5000 back from my original investment and then another $2000 as "extra" from the profits, I'd only pay taxes on the $2000 part? Also, how would the IRS even know about money coming in from Ecuador? Do banks report all international wire transfers?

Yes, conceptually that's correct. If you invested $5000 and received that same $5000 back, that portion would generally be considered a return of your principal investment and not taxable. The additional $2000 beyond your original investment would likely be considered income and would be taxable. Banks and financial institutions are required to report international wire transfers, especially those over $10,000, though many institutions report smaller transfers as well. Additionally, under FATCA (Foreign Account Tax Compliance Act), foreign financial institutions are required to report assets held by US account holders to the IRS. The reporting systems have become quite comprehensive in recent years.

How exactly does the service work? Do they just tell you what's taxable or do they actually help file the right forms? I have some foreign income from my parents' rental property in Vietnam and I never know what to do with it.

I'm skeptical about these online tax services. Did they charge a lot? And how can they possibly know tax laws for both US and foreign countries? Seems like you'd need an international tax specialist for something this complex.

The service is actually pretty straightforward. You upload your financial documents (bank statements, wire transfers, etc.), and their AI analyzes the nature of each transaction. They don't just tell you what's taxable - they explain WHY based on tax code provisions and provide the exact reporting guidance including which forms you need. They then generate a detailed report you can give your tax preparer or use if you're filing yourself. For your situation with rental income from Vietnam, they'd analyze if it falls under foreign earned income exclusion, passive income rules, or other categories and provide specific guidance on reporting requirements including foreign tax credits if Vietnam already taxes it.

How does this actually work? Do they just call the IRS for you? I'm confused about what service they're providing that I couldn't do myself.

This sounds like complete BS. Nobody can magically get through to the IRS faster than anyone else. I work in a tax office and even we have to wait on hold just like everyone else. There's no secret "skip the line" button.

They don't just call the IRS for you. Their system navigates the complex IRS phone tree and waits on hold in your place. When they reach a live agent, you get an immediate phone call to connect with the agent. This way, you don't waste hours of your day listening to hold music. The reason it works is they have technology that keeps your place in the queue without you having to be on the phone. It's not about "skipping the line" - you still wait your turn, but you don't have to be actively waiting on the phone. For my international tax question, I needed a specific department, and they navigated all the transfers between departments that would have taken me multiple calls to accomplish.

Does the FBAR thing apply if I don't have my name on any foreign accounts but I'm still sending/receiving money to family abroad? My parents in the Philippines use their local account but sometimes send me money from it.

FBAR filing requirements typically apply when you have a financial interest in or signature authority over foreign financial accounts that exceed $10,000 in aggregate at any time during the calendar year. If the account is solely in your parents' names and you don't have signature authority, you generally wouldn't need to file an FBAR just for receiving transfers from their account. However, you still need to report any income you receive from abroad on your tax return, regardless of FBAR requirements. The nature of the transfers matters - if they're genuine gifts from your parents, different rules apply than if they're income or business distributions.

Absolutely this! I had a similar setup with my uncle's business in Brazil and it turned into a nightmare during an audit because we had nothing in writing. The IRS ended up treating all the money I sent as gifts (which hit gift tax limits) and all returns as pure income. Documenting everything properly from the start would have saved me thousands.

Thank you all for the amazing advice! I definitely need to formalize the arrangement with my grandfather. I hadn't considered that without proper documentation, the IRS might interpret our arrangement differently than intended. I'll work on creating a written agreement that clearly specifies my contribution is an investment and outlines the expected returns. I've started tracking all transfers in a detailed spreadsheet as suggested. Would it be better to classify this as a loan with interest rather than an equity investment to simplify the tax treatment? I'm wondering which approach would be cleaner from a reporting perspective.