I am confused. The tip of my bit all the way up is 4.25 inches above the table. How do you set up a .125 inch cut in .75 inch material? I know this sounds easy but I have spent a half day and have not even come close.
The normal convention is for Z=0 to be the top of the work. Generally you would use a combination of work offsets and tool length offsets to achieve this. If you are just using one tool the easiest method is to simply drop the tool to the top of the work then zero the Z axis.