In a stand mixer, cream together butter, cream cheese, and sugar. Add egg and lemon extract. Add 1-2 drops of yellow icing gel.
In a separate bowl, combine flour, baking soda, baking powder, and salt. Slowly add to the mixer and mix until combined.
Chill the dough for at least 3 hours. Any less time, and the dough will be very sticky as it comes to room temperature, making it difficult to work with.
Using a 1.5-tablespoon cookie scoop, scoop mounds of cookie dough into your hand and roll into a ball. Roll the ball in a small bowl of granulated sugar to coat, followed by rolling it in a small bowl of powdered sugar. Place each ball on a parchment-lined baking sheet.
Preheat the oven to 350℉. Bake the cookies in the oven for 12-14 minutes, until set. Let cool for 1-2 minutes on the pan before moving to a cooling rack. Let fully cool before storing.