Internal Dialogue: Italics or Quotes?
Internal dialogue is used by authors to indicate what a character is thinking.
Direct internal dialogue refers to a character thinking the exact thoughts as written, often in the first person. (The first person singular is I, the first person plural is we.)
Example: “I lied,” Charles thought, “but maybe she will forgive me.”
Notice that quotation marks and other punctuation are used as if the character had spoken aloud.
You may also use italics without quotation marks for direct internal dialogue.
Example: I lied, Charles thought, but maybe she will forgive me.
Indirect internal dialogue refers to a character expressing a thought in the third person (the third person singular is he or she, the plural is they) and is not set off with either italics or quotation marks.
Example: Bev wondered why Charles would think that she would forgive him so easily.
The sense of the sentence tells us that she did not think these exact words

Quotations Within Quotations
Almost all of us have found ourselves confused with double and single quotation marks. When do we use single quotation marks? Where does the punctuation go with single quotation marks? With just a few rules and examples, you will feel surer about your decisions.
Rule: Use single quotation marks inside double quotation marks when you have a quotation within a quotation.
Example: Bobbi told me, “Delia said, ‘This will never work.’ ”
Notice that what Delia said was enclosed in single quotation marks. Notice also that the period was placed inside both the single and the double quotation marks. The American rule is that periods always go inside all quotation marks.
As a courtesy, make sure there is visible space at the start or end of a quotation between adjacent single and double quotation marks.
Example: Bobbi said, “I read the article, ‘A Poor Woman’s Journey.’ ”

http://data.grammarbook.com/blog/quotation-marks/internal-dialogue-italics-or-quotes/