Preferred Audio Output, USB or 3.5mm?

The USB output to your DAC (assuming it is a USB DAC with good implementation) is going to be galaxy away (superior than) running audio via the headphone jack out of your iMac. I have not heard of a DAC that runs from the 3.5mm headphone jack though. You might be confusing this with a different connection. To run your computer via a DAC the typical connections would be USB, or SPDIF (either RCA, BNC or Toslink). The 3.5mm headphone jack carries an analog signal (not a very desirable one either), and would not work via a DAC.

I'm using USB from my mac to the DAC. I also tried the headphone jack with a toslink cable to mini rca jack (the mac outputs optical from the headphone jack). Not really much difference. In either case an asynchronous dac will deal with any jitter issues common to both methods. For either method a good quality cable makes a big difference over the cheapo stock stuff.

Miewan - Thanks for the reply. After more thought on this, I don't think the output (USB or 3.5mm) makes a difference since the output is through a DAC before the preamp. The DAC I will use (TC7510) does not support USB, so I'll use the 3.5mm output and no need for a USB DAC.

Jax2 - A TOSLINK TO MINI PLUG CABLE ( http://www.cablestogo.com/product.asp?cat_id=2001&sku=27015 ) allows connecting to a DAC from a 3.5mm. I use this type of connection with Airport Express and TC7510 DAC.

Ah, forgot about the mini-Toslink via the headphone port. I haven't actually tried that except for with an Airport Express and it was absolutely terrible. But that is a different device. In that case it will depend upon the implementation of the USB with the DAC you are using. If the DAC has poor USB implementation you might try using a DIP/dejitter interface which can go between either USB or Toslink, but would require an additional cable. I don't have any experience with you DAC to say whether any of this would be worth it. If it sounds good to you, that's really what's important.