I do worry a little about the legality, but it's not crippling fear. My position on the prostitution totem pole also keeps me pretty safe: I'm not on the streets prompting cries to "clean up the city," and I don't have famous people or politicians as clients so there isn't the same scrutiny. The fact that we absolutely do not allow any drug use is also helpful. Law enforcement generally has better things to do than set up elaborate sting operations to give a bunch of girls a night in jail and a fine, and I don't even think the clients get a night in jail.
I see a bit like smoking pot — illegal but unlikely to get me in trouble unless I do something stupid — and escorting benefits me much more than pot. There's still that little bit of fear, but I mostly use it to remind myself not to take extra risks.
As for taxes, there's no record anywhere of how much money I make and it's always in cash, so the likelihood of getting screwed over for taxes is pretty small. I want to pay them because I believe in government, not because I'm afraid.