In a large bowl, combine butter, sugar and eggs with an electric mixer until light and fluffy. Stir in eggnog and vanilla.
In a medium bowl lightly add flour. Combine nutmeg and baking powder to flour. Add flour mixture to butter mixture; blend well. Cover with plastic wrap; refrigerate 30 minutes.
In a small bowl, combine egg yolks and water; blend well. Divide mixture into several small cups; tint with food coloring. If paint thickens add more water.
Preheat oven to 350ºF.
Divide dough in half. On a lightly floured surface, roll out half of the dough to 1/8” thickness. Cut with assorted cookie cutters. Place 2” apart on ungreased cookie sheets. Using small paint brush, paint designs on cookies with egg yolk paint.
Bake for 7-10 minutes or until light golden brown. Cool completely.
**Fun cookies to do with the kids or grandkids – I use small stencil cutouts to make designs on cookies