You still have to report all profits and then remove expenses. You have to work within your local tax laws to see what applies in your country of origin. It's really no different than any other business.
In Canada I pay sales tax on everything I buy but I can claim back all the tax amount that I paid on my business assets. So if I pay $13 tax on a $100 chair and that chair is used for business I get the $13 dollars back plus I can deduct the chair as an expense. If the expense is over $300 it is considered an asset and we have to depreciate it over 5 years whereas computer and related equipment gets depreciated over 3 years.
There is a big difference in doing domaining as a hobby as opposed to a business. Each one has it's advantage except you usually don't get charged with tax fraud if you claim everything as specified. I think the vast amount of people in domaining today fly by the seat of their pants and figure they will never be caught. So now what if you do get a big sale, lets say 500k do you claim as income or not. Either way you have to declare to the taxman, they see 500k come into your account or you report it. If you report it they as what else you have done and pandora's box is opened.
Do it right from the start and you will do yourself a huge favor in the long run.
PS. IF you don't report your 500k sale then..... well if I have to tell you then it does not really matter and you are beyond reason. Bubba will explain it to you in the big house