Prepare your workspace: Ensure butter and cream cheese are at room temperature. Line baking sheets with parchment paper.

Cream together softened butter and cream cheese using an electric mixer on medium speed for 2–3 minutes until light and fluffy.

Gradually add granulated sugar and beat for another 2–3 minutes until lightened and fluffy.

Add egg and vanilla extract; mix on low speed until combined. Scrape the bowl as needed.

In a separate bowl, whisk flour, baking powder, and salt. Gently fold into wet ingredients until just combined.

Divide dough in halves, flatten into discs, wrap in plastic wrap, and chill for at least 2 hours.

Preheat oven to 375°F (190°C) while dough chills.

On a floured surface, roll out one disc to ¼ inch thickness. Cut out shapes with cookie cutters.

Transfer cookies to the prepared baking sheets, leaving space between them. Bake for 8 to 10 minutes or until edges are lightly golden.

Cool on trays for 5 minutes before transferring to a wire rack to cool completely.