Your domain names are your inventory. When you make a sale, your profit is based on your cost of goods sold (your acquisition cost for the name), less any deductions you can make.
If I own 10 domains and sell 1 of them for $10k which I purchased for $1k, my gross profit would be $9k.
Then from here, I deduct my legitimate operational costs e.g the renewals on the other domains, maybe I can add in a computer purchase I made, the internet and electricity, home office space deduction etc....
After I deduct these operational expenses, let's say they amount to $3k.. $9k-$3k = $6k
What can't be done is to just keep buying domain names, e.g buy a a couple more domains and claim that no profit was made. Does that make sense now?