Step 1: Prepare Ingredients and Equipment
Set up your frying station: place paper towels on a plate or cooling rack for draining, prepare a shallow bowl with the cinnamon-sugar mixture (½ cup sugar mixed with 1 tablespoon cinnamon), and have your slotted spoon ready. Pour oil into a heavy-bottomed pot or Dutch oven to a depth of about 3 inches. Clip a candy thermometer to the side. Heat oil over medium-high heat to 350-375°F.

Step 2: Mix Dry Ingredients
In a large bowl, whisk together the flour, sugar, baking powder, salt, and nutmeg until well combined. This ensures even distribution of leavening and spices throughout the batter.

Step 3: Mix Wet Ingredients
In a medium bowl, whisk together the milk, egg, melted butter, and vanilla extract until smooth and well combined. The mixture should be uniform with no streaks of egg visible.

Step 4: Combine Wet and Dry
Pour the wet ingredients into the dry ingredients. Using a rubber spatula or wooden spoon, gently fold together just until combined. Don’t overmix – it’s okay if a few small lumps remain. The batter should be thick and slightly sticky, similar to thick cake batter. Overmixing develops gluten and creates tough, dense donuts.

Step 5: Check Oil Temperature
Make sure your oil has reached 350-375°F on your thermometer. This temperature range is crucial for donuts that cook through without being greasy. If too cool, they absorb oil and become greasy; if too hot, they burn outside while staying raw inside.

Step 6: Fry the Donut Holes
Using a small cookie scoop or spoon, carefully drop rounded tablespoons of batter into the hot oil. Don’t crowd the pot – fry 5-6 at a time depending on pot size. The donut holes will sink, then float to the surface. Fry for about 1-2 minutes per side, or until deep golden brown all over. Use a slotted spoon to flip them halfway through for even browning. They should be evenly golden and cooked through (no raw batter inside).

Step 7: Drain and Coat
Remove fried donut holes with a slotted spoon and place on paper towels to drain for just 10-20 seconds. While still very warm (but cool enough to handle), immediately roll in the cinnamon-sugar mixture, coating all sides. The warmth helps the coating stick beautifully. Place coated donut holes on a serving plate.

Step 8: Repeat
Continue frying remaining batter in batches, allowing oil to return to proper temperature between batches. Monitor temperature throughout frying and adjust heat as needed. Once all donut holes are fried and coated, serve immediately while warm for best taste and texture.

For Baked Donut Holes: Preheat oven to 350°F. Grease a mini muffin pan. Fill each cup about ¾ full with batter. Bake for 10-12 minutes until golden and a toothpick comes out clean. Remove from pan, brush with melted butter, and roll in cinnamon sugar while warm.