So, how do I finish to get a perfect flat surface, and no "steps" where the paint begins and starts?
Build up a sufficient number of layers of finish that they go over the paint thickly enough, so that once you wet-sand to flatten off the surface you don't 'break through' the clear coating and begin to remove any paint.
This would typically require at least three full-strength coats but you'll need to experiment to establish how many you need to apply over the painting you've done. As the Comment above from keshlam has already indicated, painting as thinly as possible would be a very good starting point. The flatter you can make the painted decorations the fewer coats of clear finish you'll need to apply, if there is some raised texture in the brushstrokes in the paint it may require something like 5-7 coats.
Some related Q&As from here:
Leveling a finish/finishing the finish
How do I achieve a "piano black" high gloss finish on wood?
One thing to do some research on, I believe that as thin a layer of finish as needed to get the right colour or surface finish is the goal for most luthiers. From what I understand this is because it has been established that the more finish you add the duller an instrument sounds so a thick coating may be something you would want to try to avoid.