Beat butter at medium speed with an electric mixer until creamy; gradually add 1/2 cup powdered sugar and extracts, beating well. Add flour, lemon rind, and salt, beating until combined. Stir in coconut. Cover and chill dough 30 minutes.
Shape dough into generous 1" balls; place 1" apart on parchment paper-lined baking sheets. Bake at 350° for 15 to 20 minutes or until golden on bottom, but pale on top. Transfer cookies to wire racks to cool 5 minutes.
Place 1 1/2 cups powdered sugar in a bowl, and roll warm cookies in powdered sugar, coating well. Cool cookies completely on wire racks. Roll cooled cookies in powdered sugar again, coating well.