It's an election year, and that means it's time for corporations to break out the checkbooks and donate to their favorite candidates and issues. For politically sensitive industries, elections can mean the difference between booming business or bankruptcy, something no company wants to leave to chance.

Political contributions are smart business, especially if the federal government provides most of your revenues. The defense industry is a prime example. While government and the industry deny political donations play any role in contract selection, evidence points to the contrary.

Oil company Haliburton (NYSE:HAL), currently under government scrutiny for possible favors from the Bush administration, has donated just less than $1 million since 2000 -- 95% to Republicans -- reaping the benefits of $2.3 billion in contract work in Iraq. General Electric (NYSE:GE), the largest defense contractor, donated $8 million to both parties over the last decade, winning more than $42 billion in contracts. They sound like great investments to me.

On the flip side, failing to play the game can have negative ramifications, something Microsoft (NASDAQ:MSFT) has learned well. Prior to 1998, neither the company nor its employees gave much in the way of political contributions, focusing instead on business. That changed drastically when the federal government, in parallel with Sun Microsystems' (NASDAQ:SUNW) Java lawsuit, filed antitrust charges against the Windows maker for anti-competitive actions against Netscape (now part of TimeWarner (NYSE:TWX)). Microsoft quickly became one of the largest political donors in the country, forking over more than $4 million in each of the last two election cycles, slightly favoring the Republicans.

New laws have limited donors' options by outlawing soft-money contributions, which were supposedly for "party building," but were used to promote candidates. Ever resourceful, political organizations have developed fresh new ways to grab money, the most important of which is the increasing use of 527 organizations, which allow "non-partisan" groups to raise unlimited funds in support of ideas and issues, but not candidates. Not surprisingly, many previous soft-money donors have shied away from 527s for fear of association with hot political issues. Some are trying new tactics, such as running "unbiased" political ads comparing candidates, something Altria (NYSE:MO) is seeking approval for.

It's been said that if you want to know the motives behind actions, you have to follow the money. There's no better advice when it comes to evaluating political decisions, the politicians who make them, and the donors who benefit.

Fool contributor Chris Mallon is rarely tempted to make political donations, and owns shares of Microsoft and Altria through his private investment partnership.