Key takeaways
- You must report amounts on a US tax return in US dollars, per the IRS.
- The general rule is to use the rate in effect when you pay, receive or accrue the item (the spot rate).
- The IRS has no official exchange rate and generally accepts any posted rate used consistently.
- The IRS publishes yearly average rates; to convert, divide the foreign amount by the rate.
What is a foreign exchange rate?
An exchange rate tells you how much one currency is worth in another. Rates are quoted two ways, which causes most of the confusion: “1 EUR = 1.17 USD” and “1 USD = 0.855 EUR” mean the same thing. Always check which currency comes first before you multiply or divide.
For a US freelancer or small business, exchange rates come up whenever you travel abroad, pay a foreign supplier or buy software priced in another currency. Each of those receipts shows a foreign amount, and your books and tax return need the dollar figure.
Scan foreign currency receipts and track them in your home currency with the Manage Receipt app.
Rates move every day. The rate a bank, card network or currency exchange gives you also includes a margin, so it’s slightly worse than the mid-market rate you see in the news.
Which rate to use for business expenses
If you pay for a hotel in Lisbon, a client dinner in Toronto or software billed in pounds, your US tax return still needs the amount in dollars. The IRS says to use the exchange rate prevailing when you pay, receive or accrue the item. If there’s more than one rate, use the one that most properly reflects your income.
- Paid by US card: your statement already shows the dollar amount charged. That’s usually the simplest and most accurate figure, because it’s what actually left your account.
- Paid in cash: use the rate on the day you paid, from a consistent published source, or the rate on your currency exchange receipt.
- Reimbursed by an employer: follow your expense policy. Many employers set one source, such as the card rate or a named website.
The IRS has no official exchange rate. It generally accepts any posted rate you use consistently.
IRS yearly average rates
The IRS publishes yearly average exchange rates for major currencies. For 2025, for example, it listed the euro at 0.886 per dollar and the British pound at 0.759 per dollar. To convert foreign currency to dollars, divide the foreign amount by the rate.
Yearly averages are a handy reference, and many tax preparers use them for amounts spread across the year. For a one-off business purchase, though, the IRS general rule points to the rate on the day you paid. Whatever you choose, use the same approach for the whole year and ask your tax professional if you’re unsure.
Recording foreign receipts
You pay a hotel in Paris €250 in cash. On that day, a published rate is €1 = $1.17.
€250 × 1.17 = $292.50. That’s the amount you record.
Using the IRS 2025 yearly average instead: €250 ÷ 0.886 = $282.17. The $10.33 difference shows why you should pick one method and stick with it.
- Keep the receiptSave the original showing the foreign amount and currency.
- Note the rateRecord the rate, its source and the date.
- ConvertWork out the dollar amount and round to cents.
- Match the cardIf paid by card, use the dollar amount on your statement.
- Record fees separatelyList any foreign transaction fee as its own line.
Common mistakes
- Multiplying when you should divide, because the rate was quoted the other way.
- Using today’s rate for a receipt from three months ago.
- Mixing sources: card rates for some receipts, a website for others.
- Throwing away the foreign receipt because the card statement shows dollars.
- Folding the card’s foreign fee into the item cost instead of recording it.
- Claiming foreign VAT as an expense and then also getting a VAT refund.
Foreign receipts, converted on scan
Scan a receipt in euros, pounds or yen and Manage Receipt reads the amount and currency, then converts it to dollars for your records. The original receipt stays attached, so your expense report and tax records show both the foreign amount and the converted figure.
Explore Currency ConversionFrequently asked questions
Which exchange rate should I use for taxes?
Generally, use the rate in effect when you paid, received or accrued the item. The IRS has no official rate and accepts any posted rate you use consistently. If you paid by US card, the dollar amount on your statement reflects the actual rate applied and is usually the simplest choice.
How do I convert a foreign receipt?
Find the rate for the day you paid from a consistent source. If it’s quoted as foreign currency per dollar, divide the receipt amount by it. If it’s quoted as dollars per unit of foreign currency, multiply. Record the rate, source and date next to the converted amount.
Can I use the IRS yearly average exchange rate?
The IRS publishes yearly average rates, and they can be used, especially for amounts spread across the year. For single business purchases, the general rule is the rate on the day of the transaction. Choose one method, apply it consistently and keep a note of it with your records.
Does the IRS have an official exchange rate?
No. The IRS says it has no official exchange rate and generally accepts any posted rate that is used consistently. It does publish yearly average rates as a reference. These rates don’t apply when you pay US taxes in a foreign currency.
Should I use the mid-market rate or my card’s rate?
If you paid by US card, use the dollar amount on your statement, since it’s what you actually paid. The mid-market rate you see online is a reference rate without the bank’s margin. For cash purchases, any published rate is fine if you use the same source consistently and keep a note.