Maybe provide more information and details and someone may be able to help you....

An LLC taxed as a S-Corp, with 2 members, sold on the 1st of October, 2020. The Seller and the buyer are both my clients. How do I handle the tax return? The sellers had 75%and 25%. the buyers will have a 50/50%. The sellers have income and expenses from 01-01-2020 thru 09-30-2020 and the buyers have income and expenses for 10-01-2020 thru 12-31-2020. It is one entity. I was told to file a short year tax return for both? I have never heard of doing that? now I'm confused.

Was it a S Corp stock sale  or asset sale? 

If stock sale and If the buyers and sellers agree to this - you file one tax return with the income/expenses allocated based on actual amounts for the actual time period owned.   Must make an Sec1377 election on the return.  Enter Date of Changes in Ownership on SmartWorksheet.  ProsSeries does not have a worksheet for calculating the correct amounts per shareholder  - you will have to override the K1s.

I had SCorp that had a stock sale twice in one year. I used P&Ls to get the correct information on return and correct amounts per each shareholder.  Takes some time but it can be done.

Option 2 for a stock sale is to prorate the year to date totals by ownership percentage.  Enter Date of Changes in Ownership on SmartWorksheet.  ProSeries will (should) do the calculations.

It was a stock and asset sale both.

Explain how it is a stock and asset sale both.   

To me as a asset sale is the assets are the equipment of the business and it does not have anything to do with stock sales.

Suggest you pay a CPA to help you with this, and I'm sure you will gain valuable knowledge that will help you in the future

Is it still an  S Corp after the transaction?

Note to others: This could be a stock sale treated as an asset sale with a 338(h)(10) election but we don't wind up with an S Corp after the deal is done.

Then how could it be both a stock sale and an asset sale?

Yes it is still a S-Corp

Did the new owners keep the SCorp name and EIN ?  

Yes they did.

It sounds like the new owners bought the stock of the company, like they bought IBM stock. The company includes its assets, of course.

That would NOT be an asset sale. An asset sale would be the assets(equipment, customer list, etc.) but not the company itself. The company sells the assets out from the company.

In a stock sale, the company still exists and there is only one tax return, 1/1/20-12/31/20. The P&L gets allocated out by the ownership pcts. for the periods of ownership.

In an asset sale, the old company could be liquidated and a short year for the final tax year, and the new owners have a new company for a short year return for the last few months of 2020.

Then it was a stock sale.     I agree with @Terry53029   you probably should ask for help with this.

Stock sale means sale of THIS company's corporate stock, not stock in an investment.