It's about time for my annual reminder to students looking for summer work to avoid the need to file a tax return next year to claim a refund for taxes withheld on the job. If you don't expect to earn enough to have any income-tax liability, you can avoid withholding and thereby eliminate having to file to get the money back.

A student may earn up to $3,560 in 1986 before incurring any tax liability, even if you are being claimed as a dependent on your parents' return. (Note the word "earned"; the tax-free limit on unearned income such as interest and dividends is $1,080.)

If you had no income-tax liability for 1985 and expect to have none for 1986, you are exempt from withholding.

On the Form W-4 your employer wants you to complete, check the box on line 6c that asks if you are a full-time student. And remember to ask if there is a similar exemption certificate you can sign for state tax, too.

This exemption from withholding is not limited to students. The same rule applies to, say, a retiree who takes a holiday season job to augment his or her Social Security benefits, or a low-paid worker with lots of dependents. You may eliminate tax withholding if you meet the test: no tax in 1985, no expectation of tax liability in 1986.

On a related subject: Did you claim a big refund on your 1985 income-tax return? If that's the normal situation and not a result of some unusual circumstance in 1985, you may want to reduce the amount withheld from your pay to a figure more closely related to your actual tax liability. Overwithholding is, in effect, an interest-free loan to your Uncle Sam -- a nice gesture, surely, but wouldn't you rather have the dollars in your own hot little hands?

One of the reasons for overwithholding is that a lot of people think the amount of withholding allowances they may claim on Form W-4 is limited to the number of personal and dependent exemptions taken on their tax returns.

This is not so. You may claim extra withholding allowances for almost any circumstance that will reduce your tax bill at the end of the year. For example, if you plan to deposit $2,000 in an IRA and deduct that amount as an adjustment on your tax return, you may add at least one, and perhaps two, allowances to your W-4 total.

Extra withholding allowances are authorized for such things as itemizing deductions (because the withholding rate tables are based on the zero bracket amount) and paying deductible alimony. As a rule of thumb, you can figure that each withholding allowance you add will reduce the amount of wages on which tax is withheld to the tune of about $20 a week.

Like just about everything connected with your personal finances, tax withholding is not a static situation; you don't want to file a W-4 when you start work, then forget it. Any time there's a change in your personal circumstances, you should take another look -- and correct your claimed allowances (either up or down) to fit the new conditions.

Q: What is one's cost basis of stock received as a gift, such as a stock received a year ago that was trading at $75 a share and now is trading at $100? Would the recipient's cost basis be zero and the net proceeds entirely subject to capital gains tax? Or would the cost basis be $75 and capital gains tax be due on the difference between that figure and the selling price (less commissions)?

A: You need one other number to determine the basis for the recipient of the gift: the donor's adjusted basis in the stock. If the fair market value on the date of the gift ($75 a share in your example) is less than the donor's adjusted basis, then the recipient's basis for capital gain is the same as the donor's basis. But the basis for a capital loss on sale is the fair market value on the date of the gift.

Confusing? It gets more so. If the fair market value on the date of the gift is greater than the donor's adjusted basis, the recipient's basis for either gain or loss is the donor's basis. But if gift tax was paid, then the donor's basis should be increased by that part of the gift tax attributable to the increase in value on which tax is paid over the donor's adjusted basis.

(Caution: The rule for gifts prior to 1977 is a little different; and if the gift was received before 1921, it's another ballgame entirely, and you should get help -- either from a professional or from the IRS.)