Currency Reporting for Expats: What You Need to Track

All income and deductions on a US tax return must be reported in US dollars — if you earn, spend, or hold assets in a foreign currency, you must convert to USD using the appropriate exchange rate. For income and expenses, you generally use the exchange rate on the date of the transaction; for year-end account balances reported on FBAR, you use the December 31 exchange rate or the highest balance during the year. The IRS accepts the use of Treasury Department exchange rates or any consistently applied method; the IRS website publishes annual average rates that are acceptable for transactions throughout the year. Currency gains and losses can arise when you hold foreign currency itself — if you kept euros in a bank account and the euro strengthened against the dollar, you may have a taxable currency gain when you spend or convert those euros. Detailed record-keeping of transactions in foreign currencies is essential for accurate US filing.