How to convert foreign-currency invoices to your home currency

One charge, three different numbers

Say a software company in Europe bills you €20.00 on March 3 and you pay with a US card. Three numbers now exist, and they almost never match. The figures below are made up for illustration.

None of them is wrong. They answer different questions: what you agreed to pay, what it was worth in dollars on the invoice date, and what actually left your account.

What the IRS says about exchange rates

The IRS page on foreign currency says you must report amounts on your US return in US dollars, and that in general you use the exchange rate prevailing (the spot rate) when you receive, pay or accrue the item.

The IRS has no official exchange rate. It generally accepts any posted exchange rate that is used consistently. Its foreign currency page lists government sources such as the US Treasury and the Federal Reserve, plus private ones.

The IRS also publishes a table of yearly average exchange rates (currently 2021 to 2025). Rates in that table are units of foreign currency per dollar, so you divide the foreign amount by the rate. Whether a yearly average or a daily rate fits your situation is a question for your tax professional; the general rule on the IRS page is the spot rate.

If you file taxes outside the US, your tax authority has its own rules, so check them or ask a local adviser.

Why your card statement shows a different amount

Your card doesn’t convert at the invoice-date rate. The charge is converted when it is processed by the card network and your bank, which can be a few days after the purchase, at the rate that applies then.

Your card may also add a foreign transaction fee. The federal Truth in Lending rules (Regulation Z) describe such fees as applying to purchases in a foreign currency and also to purchases from a foreign merchant in US dollars, for example on the merchant’s website. So a dollar invoice from an overseas company can still come with a fee on your statement.

Refunds are converted again when they are processed, so a refund may not exactly cancel the original charge.

Which amount goes in your books

You have two practical options. You can record the dollar amount your card actually charged and keep the invoice to show what you bought. Or you can convert every invoice at a reference rate for its date and record the card fee as a separate line.

The IRS wording ties the rate to when you pay or accrue the item and asks for consistency. Which option fits your accounting method is a decision to make with your tax professional. Whatever you choose, keep both numbers so you can explain the difference later.

Spreadsheet columns that keep both numbers

One row per invoice, with these columns. When the rate is quoted as foreign currency per dollar, as in the IRS table, converted USD = amount ÷ rate. When it is quoted as dollars per unit of foreign currency, converted USD = amount × rate. Check which way your source quotes it before you fill a whole column.

• Invoice date (the date on the vendor’s document)
• Vendor
• Description (what you bought, for example “team plan, March”)
• Currency (EUR, GBP, JPY and so on)
• Amount in currency (the invoice total, including any VAT or GST the vendor added)
• Exchange rate
• Rate date and source (for example “IRS yearly average 2025” or the daily rate source you use)
• Converted amount in USD
• Card charged in USD (from the statement)
• Foreign transaction fee in USD
• Payment method (card name and last four digits)
• File name of the invoice PDF
• Notes (refund, credit note, annual plan period)

Where people get stuck

• Annual plans: the invoice date and the service period differ. Record the invoice date and put the period in Notes.
• Weekends and holidays: many daily rate sources publish nothing on those days. Pick a rule, such as the last published rate before the date, and use it every time.
• VAT or GST on foreign invoices: some vendors add their local tax. Record the invoice total and the tax line separately, and ask your tax professional how to treat the tax.
• Refunds and credit notes: enter them as negative rows next to the original invoice, with the dollar amount the card actually refunded.
• Dollar invoices from foreign companies: no conversion is needed, but check the statement for a foreign transaction fee.
• Several invoices in one PDF: split them so each row points to one document.

Questions

Does the IRS have an official exchange rate?

No. The IRS says it has no official exchange rate and generally accepts any posted exchange rate that is used consistently. It publishes a table of yearly average rates and lists other government and private sources on its foreign currency page.

Should I use the invoice date or the payment date?

The IRS says to use the rate prevailing when you receive, pay or accrue the item. Which of those dates applies depends on your accounting method, so confirm it with your tax professional and then use the same rule for every receipt.

Can I use the IRS yearly average rate for everything?

The IRS publishes yearly averages, but its general rule is the spot rate when you receive, pay or accrue an item. Ask your tax professional whether an average is acceptable for your situation before you rely on it.

Is the foreign transaction fee part of the expense?

It is a separate charge on your statement. Record it in its own column so your tax professional can decide how to treat it. If you mix it into the converted amount, it becomes hard to match the invoice to your books.

Why was I charged a foreign transaction fee on a dollar invoice?

Under Regulation Z, fees on transactions with a foreign merchant count as foreign transaction fees whether the charge is in a foreign currency or in US dollars, for example when you buy on a foreign merchant’s website. Your card’s terms say whether it charges one and how much.