Technically the best files are the original AIFF files. Any compression, even my preferred 320 kbs AAC, will degrade the sound quality. Realistically, unless you have a very high quality sound system you will never hear the difference. Even with a high quality sound system the differences are subtle. For most people 256 kbs AAC files are the sweet spot between sound quality and file size.
I did some careful testing a few years ago, matching the output level between my Rotel CD player and my Apple TV connected to my preamp's digital input (the Rotel has the same DAC), and could not hear any difference at all on six of 10 tracks. Three tracks sounded slightly better from the CD player, and one sounded slightly better running through the Apple TV. The iTunes files were streaming from my computer in my home office through the ATV in the living room.
My equipment: Sony ES preamp with 18-bit Burr-Brown DAC, 225 wpc Carver amplifier, DCM TF-7 speakers, Rotel 971 CD Player, Nakamichi RX-505 cassette player, Technics SL-1700 turntable.
Perhaps the differences would have been more apparent if I still had my Martin-Logan ReQuest speakers, but the TF-7s are 90 percent as good.