With all the talk about tax planning for 2025, I'm stuck on one practical issue. I freelance for several overseas clients who pay me via platforms like Wise or PayPal. These payments are in foreign currency and the exchange rate fluctuates between when I invoice and when I actually transfer the funds to my bank. What's the correct way to calculate the income for my taxes—the amount at the time of the invoice, the rate when it hits the intermediary platform, or when it's finally converted to dollars in my account?
Short answer for US freelancers on cash basis. You count income when you actually get paid in USD. Use the exchange rate on the date you receive the funds to convert to dollars. Invoices alone do not count as income yet.
If there is a delay between invoicing and receipt the rate difference can create a currency gain or loss which you report as ordinary income or deduction when you convert to USD.
Keep receipts of the payment date and rate from Wise or PayPal and document the USD amount you finally receive. That is what you should report on your tax return.
Be aware some platforms charge fees and the net amount is what matters for revenue. Include those fees as part of your income or as an expense depending on how you track it.
For tax planning 2025 checklist consider how you treat foreign currency payments and currency gains. Running a few practical scenarios and then talking to a tax pro keeps you from guessing.