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Smoking affects mental health and physical functioning, which makes understanding its broader health impacts important. With a focus on mental health and functional limitations in daily activities, this study applies causal methods to address endogeneity and misreporting in self-reported smoking status. First, I instrument smoking with lagged cigarette taxes in a Two-Stage Least Squares (2SLS) framework. Second, I use a misreporting-corrected approach that models true smoking behavior through a probit 2step model. Estimates from this misreporting-corrected model show that smoking significantly increases the probability of experiencing poor mental health and functional limitations. The larger and more precise effects compared with the 2SLS estimates highlight the importance of accounting for errors in smoking status.