Mix and bake cupcakes according to the box directions. Cool completely.
In a medium bowl, cream butter and vanilla until light and fluffy.
Gradually add powdered sugar a little at a time. Add milk as needed until you reach your desired consistency.
Spread or pipe frosting onto cupcakes.
Sprinkle red sugar on the upper third of the cupcake to resemble a hat.
Cut marshmallows in half. Place one at the end of the hat to resemble a fluff ball. Also, place them along the line of the hat to resemble the fur lining. Finally, add more marshmallows to form Santa's beard.
Add 2 mini chocolate chips for the eyes and a red hot for the nose.