Stir together the lukewarm milk, 1 tsp of sugar, and yeast into the bowl of a stand mixer fitted with the dough hook. Allow the mixture to sit for about 10 minutes or until foamy. If the mixture doesn't bubble, the yeast is too hot or cold and you will need so start over.
Add sugar, salt, egg, melted butter and 2 cups of flour to the milk mixture. Turn the mixer on low speed and add the remaining cup of flour slowly, until the dough is no longer sticky. Increase the mixer speed to medium and knead for about 5 minutes or until the dough is smooth and elastic.
Place the dough into a greased bowl (you can use oil or melted butter) and cover with plastic wrap. Place the bowl in a warm place until doubled (about 1 hour). The dough is ready when you press it with your finger and it leaves an indentation.
Place the dough out onto a floured surface, press it down and roll out to about 1/2 inch thickness. Using a 3-inch round donut cookie cutter, stamp out donuts. Alternatively you can use a large glass and a shot glass to cut out 1 inch holes from the middle of the donut.
Transfer donuts and holes to parchment paper and cover loosely with greased plastic wrap. Let donuts rise until doubled in volume, about 20-30 minutes. Spray donuts with cooking oil spray.
Turn air fryer to 350 degrees. Transfer donuts to air fryer basket making sure that donuts are 1 inch apart. Spray donuts with oil spray and cook at 350 degrees until golden, about 4-5 minutes. Repeat with remaining donuts and holes.
While the donuts are in the Air Fryer, stir milk 1 tablespoon at a time into powdered sugar until smooth. Add food coloring as desired for desired color. Set aside.
Dip hot donuts and donut holes in the glaze using to forks to submerge them. Place on a wire rack set over a rimmed baking sheet to allow excess glaze to drip off. Let sit until glaze hardens, about 10 minutes.