Former Villa boss Taylor fears the current Villa squad "is not strong enough" outside of O'Neill's first choice 11.
Villa operated with the smallest squad in the Premier League last season and ran out of steam in the final third of the campaign.
Taylor said: "I always say that you judge a manager after three years. That is the minimum. Martin is now going into the fourth year at Villa and it is now his team and his squad.
"After you have been in charge for three years, you will eventually be judged by your signings so I think this is an important summer for Martin in whom he brings into the club.
"When I have seen Villa play, and Martin has had his full team out, then they have been good enough.
"When he has not had all of the first team available, through injuries, suspensions, whatever, the squad isn't strong enough. That is my view.
"He has operated with only 23 players this season. If he gets into the top four next season, he will want to operate with at least five more players.
"I am not a great lover of rotation but there are a lot of games, a lot of travel, tiredness, the pace of the game, etc. If Villa are going to be in the top four, they will need to use 28 players."
Taylor also feels that the likes of PFA Young Player Of The Year Ashley Young and runner-up Gabriel Agbonlahor may have to step up a level next season.
He said: "With boys as young as Agbonlahor and Young, the chances are, when you've had a couple of seasons like they've had, there is always that distinct possibility that they will level out.
"Defenders become used to them and they are not as big a surprise to them any more and have learned how to play against them.
"Then they have to improve other aspects so you have got that to come into the equation as well."