Which type of business qualifies to avoid the $10,000 federal cap on state and local tax deductions due to the SALT cap workaround?

The correct choice is that partnerships with members as individuals qualify to avoid the $10,000 federal cap on state and local tax deductions due to the SALT cap workaround. The SALT (State and Local Tax) cap, implemented by the Tax Cuts and Jobs Act, limits the amount of state and local taxes individuals can deduct on their federal tax returns to $10,000. However, certain partnerships are structured in a way that allows individual partners to bypass this limitation.

In this situation, partnerships are considered pass-through entities. This means that income, losses, deductions, and credits flow through to the individual partners, who report them on their personal tax returns. When states introduced workaround provisions, they allowed partnerships to pay state taxes at the entity level. This entity-level tax payment can then be deducted from the partners' individual income, essentially allowing them to sidestep the $10,000 cap on their personal returns.

Other business structures, such as sole proprietorships and corporations, do not have the same benefits under the SALT cap workaround. Sole proprietorships are taxed as individual filers and do not provide any entity-level tax mechanism that would circumvent the cap. Corporations, on the other hand, are taxed at the entity level and