IRS exchange rates

Simon Misiewicz

Simon Misiewicz

Expat & Property Tax Specialist

19th July 2022

IRS exchange rates

IRS exchange rates are significant because they help any American expat living and working abroad to convert their foreign income into dollars.

We can help you if you are an expat abroad looking at exchange rates.

Understanding IRS exchange rates can make a difference to expats’ tax liabilities to the IRS.

Appreciating the history of exchange rates is vital for any American expat living abroad in foreign countries.

What are the basics of IRS exchange rates?

Any American expat living abroad is required to file a US tax return reporting their worldwide income each year. It is vital to understand exchange rates.

This is because the US is one of the few countries worldwide that applies citizenship-based taxation.

This applies to any expat living abroad.

On occasion, they also must file additional forms, including a FATCA or an FBAR.

Any American expat abroad must report income and assets on these forms in US dollars (USD).

This means converting the foreign currency being used to USD when living abroad.

That’s where IRS foreign exchange rates are relevant for an American expat.

They must convert whatever relevant currency in their new home country into dollars with IRS-approved foreign exchange rates.

If you are a US expat living in France, which pays residents and citizens in euros, you would have to convert all your assets and income in euros into dollars and declare them on your US tax return as an expat.

Understanding the rates is critical.


What is the IRS foreign exchange rate?

Expats abroad need to understand rates.

The IRS has no official exchange rates.

But they will accept any posted exchange rate that is used consistently.

When valuing a foreign currency with multiple posted exchange rates, it is advisable to use whichever rate applies to your specific circumstances as an expat abroad.

If you were reporting a single transaction from one day, such as the sale of a business, use the recorded rates for that day.

If as an expat abroad you were reporting income you received throughout the year, it would be better to use the yearly average currency exchange rate for that tax year as an American expat abroad.

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How to convert foreign currency to US dollars

Exchanging currencies to IRS exchange rates may sound complex, but it can be simplified for an American expat.

It is vital to know how to do this as an expat abroad. Rates are an important consideration.

To convert a foreign currency to USD, divide the foreign currency amount by the applicable foreign exchange rates. We can help you as an expat abroad.

To convert USD to a foreign currency, multiply the USD amount by the applicable exchange rates when abroad.

How to convert foreign assets to US dollars

As an American expat living abroad, you may have to report the value of certain foreign assets and income.

Foreign assets can include:

* Bank accounts

* Investment accounts

* Mutual funds

* Stocks

* Bonds

* Securities

* Interests in a foreign entity

An American expat abroad would need to report these assets in USD.

Start by determining the asset’s value in the calendar tax year using the foreign currency of the country you live in. If living as an expat abroad, you must do this.

Then convert that value to USD using the formula expressed previously in this article.

We are here to help any American expat abroad with related queries, including exchange rates.

When reporting assets on a Foreign Bank and Financial Interests (FBAR) report, you should calculate the maximum value of each foreign asset using the Fiscal Service’s Treasury Reporting Rates of Exchange.


Do Americans pay less income tax abroad using a Qualified Business Unit?

This is an important question for an American expat living abroad.

The USD is the functional currency for all taxpayers except some qualified business units (QBUs).

A QBU is a separate and identified unit of a trade or business that maintains separate books and records.

Even if you have a QBU, your functional currency as an expat abroad is the dollar if any of the following applies:

* You conduct the business in dollars.

* The principal place of business is located in the US.

* you choose to or are required to use USD as your functional currency.

* The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities are conducted.

Make all income tax determinations in your functional currency as an expat living abroad.

If your functional currency is USD, you must immediately translate into dollars all items of income and expenses, including taxes that you receive, pay, or accrue in a foreign currency, which will affect working out your income tax.

Use the IRS exchange rates prevailing when you receive, pay, or accrue the item.

If there are multiple exchange rates, use the one that properly reflects your income.

As an American expat abroad, you can get exchange rates from banks and US Embassies.

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