In a medium bowl, combine your flour, baking powder, salt, and ground nutmeg. Whisk to combine, and set aside.
In a separate large bowl, whisk together your sugar and butter. The mixture will be dry and crumbly, but the sugar should be coated in the butter. Add in your eggs one at a time, whisking well after each addition. Whisk in the vanilla and sour cream, as well.
Add your dry ingredients to the wet mixture. Mix everything together until it just starts to form into a sticky dough. Take care not to overwork the dough as it can make the donuts tough!
Turn your donut dough onto a floured work surface. Using your hands or a rolling pin, gently flatten the dough into about 1/4 to 1/2 inch thick. Cut your donuts out using a floured 2 & 1/2 inch donut cutter.
Fill a large pot with high sides with about 2 inches of neutral flavored oil. Set the pot over a stove burner set to medium heat. Preheat the oil to 375°F. Carefully add in your donuts to the hot oil. Fry the donuts in batches until golden brown on each side (about 1 to 2 minutes per side). Transfer to a wire cooling rack or paper towel lined plate to drain. Repeat the frying process with the remaining dough.
For the glaze: In a medium sized bowl, combine your powdered sugar and 3 tablespoons of water. Whisk together until you get a smooth glaze. If the glaze is too thick, gradually add more water until you reach your desired consistency.
While the donuts are still warm, dip in your glaze. Set on a wire rack to allow the excess glaze to drip off.