I sold my dry cleaning business (S-Corp) in 2017 and took a seller note back; however I did not file via the installment method. I claimed the entire sale as a regular business sale of assets. The seller has not paid me since September 2018 and I'm taking this as bad debt (I'm 99% certain he is not going to pay me). The S-Corp was dissolved in 2017 with the filing. Do I need to restate/amend 2017 & 2018 with interest income from what seller paid me? So then in 2019 how do I report the loan loss as bad debt (principal + accrued interest)? Will I need to file an 1120S or go with Sch. C. I can prove that it was business debt as I have a promissory note signed by both parties with Asset Purchase Agreement and the ceasing of payments last September 2018. Just need some clarification as I look at taxes at year end. Thank you
Unfortunately, you have a fairly complicated tax (and potentially legal) scenario and should absolutely seek legal counsel as well professional tax guidance and tax preparation.
One thing you cannot do would be to re-state/amend to adjust prior returns and also deduct the entire loss as a bad debt. Again, you will need professional guidance on the various issues presented.
Although I would think interest received in 2017 & 2018 from buyer (via Note) would be considered income outside of the business income received in the same year. I guess the complex scenario is the remaining Note balance owed to me (defaulted) and how it's treated for tax year 2019 (when I realized the loss/non-payment)