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What foreign exchange rate should I use?


The IRS requires all income or expenses to be reported in US dollars. The IRS accepts two methods of dollarization on expat tax returns, both of which have the potential to bring tax savings. The IRS prefers that you itemize all income and expenses and use the exchange rate on the day payment was made or received. That said, there is the option to total all of your income or expenses and use the average annual exchange rate if, and only if, your income and expenses are earned or paid evenly over the year. You need to look at both exchange rates and see which will convert your income into the lowest USD amount.

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