Right exchange rate for currency conversion for foreign income reporting?

[ravi-nalwaya]

Hi I have some foreign income in Indian Rupee for 2016 and hence need to convert to USD. I went through other similar questions regarding currency conversion rate and in few of those answers it was suggested to use the IRS provided rate (https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates), while in other answers it was advised to use Treasure Department exchange-rates (https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates... (https://www.fiscal.treasury.gov/fsreports/rpt/treasRptRateExch/currentRates.htm). Now if I follow the first IRS link, the exchange rate is provided as 69.56, whereas Treasury Reporting Rates of Exchange as of December 31, 2016 for India is 67.8. Which rate am I suppose to use?

[DDollar · Accepted solution]

You have a choice of which rate to use, so use the one that is most beneficial to you.  According to the IRS:

Use the exchange rate prevailing when you receive, pay, or accrue the item. If there is more than one exchange rate, use the one that most properly reflects your income. You can generally get exchange rates from banks and U.S. Embassies.

The IRS also lists the following resources for obtaining an exchange rate:

Governmental Resources

• Treasury Department's Currency Exchange Rate
• Federal Reserve Bank
• U.S. Department of Agriculture

External Resources

• Oanda.com
• xe.com
• x-rates.com

[gocucocom]

Which One Should You Choose?

If your income was spread out over the course of 2016, using the IRS yearly average rate (69.56) is generally acceptable and aligns with IRS guidelines. However, if you received the income at a specific point in time, especially at the end of the year, the Treasury Department’s year-end rate (67.8) may be more accurate.

In some cases, you can select the method that best matches the nature of your foreign income, but it’s always best to maintain consistency year after year. Consulting with a tax advisor could provide clarity for your specific situation.

Trusted Currency Conversion Sources

Here are some reliable sources for currency conversion rates:

1. IRS Website
   The IRS provides yearly average rates and guidelines for currency conversion:
   IRS Yearly Average Currency Exchange Rates

2. U.S. Department of the Treasury
   The Treasury Department provides official exchange rates for year-end reporting:
   Treasury Reporting Rates of Exchange

3. OANDA
   A well-known source for historical and real-time exchange rates, used by financial institutions and accountants:
   OANDA Currency Converter

4. XE
   A trusted tool for real-time exchange rates and historical data:
   XE Currency Converter

5. X-Rates
   Provides daily updates on exchange rates and historical data for various currencies:
   X-Rates Currency Converter

6.   Gocuco