Converting Foreign Currencies to U.S. Dollars for Tax Purposes

When filing your U.S. tax return, it’s essential to report all figures in U.S. dollars. This means if you’ve received income or paid expenses in a foreign currency, such as converting Euro To Won Currency and then to USD, you’ll need to translate those amounts into U.S. dollars. Generally, the exchange rate you should use is the prevailing market rate, also known as the spot rate, at the time you received the income or paid the expense.

There is a specific exception for certain qualified business units (QBUs). QBUs are often permitted to use the currency of a foreign country for their financial record-keeping. If you operate a QBU with a functional currency other than the U.S. dollar, you should determine your income in the QBU’s functional currency first. Then, where necessary, translate that income or loss into U.S. dollars using the appropriate exchange rate.

It’s also important to be aware that you might need to recognize a foreign currency gain or loss from certain transactions involving foreign currencies. For detailed information on this, refer to section 988 of the Internal Revenue Code and related regulations.

Important Note: Remember that all U.S. tax payments to the IRS must be made in U.S. dollars.

Understanding Currency Exchange Rates

It’s crucial to know that the Internal Revenue Service (IRS) does not have an official exchange rate. Instead, the IRS generally accepts any publicly available exchange rate that is applied consistently by the taxpayer. This provides flexibility but emphasizes the need for consistent application of a chosen rate.

When dealing with a foreign country’s currency that has multiple exchange rates, you must use the exchange rate that is most applicable to your specific situation and the nature of your transaction. For example, different rates might apply to tourist exchanges versus commercial transactions.

Important Note: The exchange rates provided on this page are for informational purposes and do not apply when you are making payments for your U.S. taxes to the IRS. When the IRS receives tax payments in a foreign currency (which is not recommended), the conversion to U.S. dollars will be based on the exchange rate used by the bank that processes the payment when the foreign currency is actually converted into U.S. dollars. This date of conversion by the bank, not the date the IRS receives the foreign currency payment, is what determines the rate.

Utilizing Yearly Average Currency Exchange Rates

For exchange rates not listed in the table below, or for more detailed information, you can refer to governmental and external resources listed on the IRS “Foreign currency and currency exchange rates” page. You can also use any other reliable posted exchange rate, as long as you use it consistently.

The table below provides yearly average exchange rates which can be helpful for general tax calculations, especially when dealing with income or expenses incurred throughout the year.

To convert an amount from a foreign currency, like euro to won currency and then to U.S. dollars, divide the foreign currency amount by the applicable yearly average exchange rate found in the table. Conversely, to convert an amount from U.S. dollars back to a foreign currency, multiply the U.S. dollar amount by the yearly average exchange rate.

For example, if you need to convert South Korean Won to USD for the year 2023, and you have 1,000,000 Won, you would divide 1,000,000 by 1306.686 (the 2023 yearly average rate for Won to USD). Similarly, if you were converting Euros to USD for 2023, using an average rate of 0.924, €1,000 would be converted by dividing 1000 by 0.924.

Yearly Average Exchange Rates for Converting Foreign Currencies into U.S. Dollars