Is it better to start a legal crypto business or just add the extra income to your taxes?
That probably depends on what country you are a resident for tax purposes.
Where I’m from, the government is particularly harsh in its treatment of individuals who are involved in Crypto mining and trading - they bite you for taxes on multiple occasions and allow no deductions - capital or operating. Of course they’re just doing their part to support big finance and discourage the little people from having any control over their money.
For a business on the other hand, you get all the normal business deductions as well as a favourable company tax rate. A negative of course is the extra cost of operating a company structure (compliance and accounting fees being examples of areas where expenses are far greater than for an individual) but for me it’s a no-brainer given my weekly income generated from mining.
One thing that I have found is that since moving everything into a company structure, I am much more relaxed about using top tier, legitimate exchanges in my own country who I know report everything to the government - I’m going to be reporting it anyway so I no longer feel the need to flirt with dodgy russian and chinese based organisations that can disappear with my money.
Are you in the US? If so, the simplest type of crypto mining business is a sole proprietorship. Any income earned by the ‘business’ is passed through and added to your personal income from Form 1040 Schedule C. You can deduct your expenses and depreciate your hardware over 3-5 years.
For tax purposes, you can pay $300 to a local attorney to launch an actual LLC, and write off all associated costs. Check out Mark J. Kohler on Youtube he’s extremely knowledgeable on the topic of taxes, and has taken a focus on how cryptocurrency effects your tax returns.