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Equality aside, filing jointly isn't for all gay couples

A gay couple holds hands during a rally in support of the United States Supreme Court decision on marriage rights in San Diego, California J
A gay couple holds hands during a rally in support of the United States Supreme Court decision on marriage rights in San Diego, California J

By Beth Pinsker

NEW YORK (Reuters) - Same-sex couples have a new right to celebrate in April, when they can file joint federal tax returns for the first time.

It might actually make sense for some couples to stay asunder in the eyes of the Internal Revenue Service, even though the U.S. Supreme Court struck down the Defense of Marriage Act in June 2013. Tax experts say only about 5 percent of married couples file separately because of significant downsides such as limited itemized deductions and a much higher tax bite, but it may work out better than filing jointly in specific circumstances.

"Many couples see the pain, going from two singles to married," said Terry Durkin, director of the National Association of Enrolled Agents.

Here's what married couples, regardless of gender, need to consider as they decide how to file their taxes in 2014:

1. Are your incomes unequal?

If one spouse makes considerably less money than the other, consider filing separately to keep each in a lower tax bracket. This is especially true if the lower-earning spouse has high itemized deductions such as big medical expenses that would not qualify for a deduction, which starts above 10 percent of the combined adjusted gross income.

Income disparity is on the minds of Julie Dorley and her wife Susana as they consider filing separately for the first time as a married couple. They wed in 2004 in Massachusetts, which recognizes same-sex unions.

Dorley, an information services worker in Boston, has W-2 income, while her wife owns two freelance businesses that produce much lower income and require quarterly estimates.

Durkin, her tax adviser, said most tax preparers will run the numbers both ways and that tax preparation software such as TurboTax, a unit of Intuit Inc , usually allows manipulation to compare outcomes.

"I think we'll still file jointly, I feel like I have a political stake in doing so," Dorley said.

2. Are you both high-earners?

Durkin, who is based in Burlington, Massachusetts, has another client couple considering filing separately. They both earn a lot, putting them over the new combined threshold of $450,000 for paying higher tax rates on things such as capital gains.

The math is so dire in some cases that high-earning same-sex couples are considering the tax issue as they decide whether to marry.

Jean Nelson, president of the California Society of Enrolled Agents, has received at least six calls in the last three months from same-sex clients seeking her financial opinion on the decision.

"They say, we're leaving it up to you whether we should get married or not," Nelson said. She told them: "If this is your deciding factor, then don't get married. If you don't have another reason, then it's the wrong place for you."

3. Do you want to separate assets?

In community-property states such as California, Texas, Arizona and a handful of others, separate filing is required for keeping assets from commingling.

Nelson, based in San Francisco, said she usually advises clients in this position to get a prenuptial or postnuptial agreement to delineate ownership. She gets about a dozen of these cases in a year.

Nelson cautioned, however, that it is not for everyone: Couples usually decide not to file separately because their lives are too intermingled.

5. Is anyone hiding anything?

Filing separately means the IRS will not hold a spouse liable for mistakes or fraud on the other's return.

You may want to go your own way if "you're in a situation where you aren't confident that your spouse was being aboveboard and you don't want to get involved in it," suggested J.J. Montanaro, a financial planning expert with USAA, a financial services company that caters to customers with military ties.

6. Are you mad at each other?

Divorcing couples who do not have a signed decree before December 31 of that tax year could consider filing separately for practical reasons, even if it might be more beneficial financially to file jointly.

Acrimony also is a warning sign that filing separately may be in your best interest.

Cynthia Leachmoore, an enrolled agent based in Soquel, California, said she tells married clients that filing jointly is an election and if one spouse does not want to, the other cannot.

While Leachmoore thinks she files more separate returns than her colleagues, she doesn't think she'll end up getting a large number of new same-sex couples going that route this year.

"People are dancing up and down to file jointly," Leachmoore said.

(Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance.

Editing by Lauren Young and Amanda Kwan)

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