Can I take a business deduction for the small cash donations my business makes to various qualified charities in the neighborhood? I am a sole proprietor.

If you itemize deductions, you can include charitable gifts on Schedule A as long as you have a receipt for each payment. Generally, you cannot deduct them on Schedule C. However, if you made a payment to a charitable organization that was not for charity nor a gift, you may deduct the payment as an expense to the business. If your business received any benefit for the donation (ad space or marketing, for example) you may deduct the payment as an expense. Otherwise, your charitable gift/donation is not deductible as a business expense, but may be deducted on Schedule A if you itemize your deductions for your personal tax return.

You may want to review the IRS link below for clarification on this rule. There are examples that may help you determine if you can deduct the payments or not: http://www.irs.gov/publications/p535/ch11.html.