Because of Asia's influence on Buddhism and Taoism,
Take a look especially in the rituals and principal beliefs of the two and you'll find big differences
People shouldn't get confused between the two unless they know little of either. There has however been some influence on Buddhism by Taoism in China resulting in Ch'an which later became Zen when it arrived in Japan.
Taoism (there are many forms) is essentially formalized Chinese shamanism. Some Taoism is religious, some is philosophical, some is alchemical (who's practitioners sought immortality and who's practices are similar to Tantric Yoga). The Longmen or Dragon Gate sect of Taoism is relatively newer and is an interesting fusion of Taoism, Buddhism and Confucianism. The details are too complex to go into here but philosophical Taoism's focus is to be in harmony with nature or The Way.
Buddhism in it's original form (Theravada, the tradition of the elders) is based on the 4 noble truths: 1) life is unsatisfactory or suffering; 2) suffering has a cause - attachment and desire 3) there is an end of suffering - Nirvana 4) there is a method to achieve the end of suffering - The Eight-Fold Path. It also includes a highly sophisticated and progressive series of meditations leading one to increasingly refined insights into the nature of reality ultimately resulting in enlightenment.
Taoism is polytheistic (many gods), Buddhism is non theistic (no gods). In Taoism, it is believed that after you die your soul still remains and can even drift into space, etc. In Buddhism, there are no souls because everyone and everything is one, and after death you basically return to the 'nothing' (or everything) you came from.
Those are only a few. This question has been asked before.
http://answers.yahoo.com/question/index?qid=20071201153656AA1CfSE
Buddhism is a teaching, there is no god and only great teachers in the past whom we pay respect to. Taoism has a lot of gods which you need to pray to for different purposes, some of the teachers that founded the teaching in Buddhism has been used by Taoism as gods over time.
The differences between Buddhism and Taoism and why people always get confused between the two are explained very well on page 28 of Dr. Yang Jwing Ming's book, Qiqong The Secret Of Youth. I'm quoting part of that page below and adding a few explanations of my own in brackets.
"Religious Daoism (Taoism) was neither the purely traditional, conservative scholar Daoism (presumably originally from China. You can read more about Taoist beliefs in the second book link below), nor the pure Buddhism imported from India, but it began as a combination of the philosophy and theories of both. If we look at the historical background of that time, we can see an important point. At that time, China was the strongest country in Asia, and it culture was the most advanced. It is incredible that China would be so open as to absorb Buddhism into its culture, especially at a time when Chinese society was so conservative and its people were all so proud of their long history. If the Han emperor were not so open-minded, the spread of Buddhism in China would probably have been delayed for several centuries.
Religious Daoism was born during this period. It not only kept the good parts of traditional Daoist philosophy, but it also absorbed useful parts of Buddhist culture and their methods of spiritual cultivation which were imported from India. Over they years, they have kept this open-mindedness, and have never hesitated to learn things from other styles.
Next, let us take a look at the fundamental theory and philosophy of Daoism. Daoism emphasized the "Dao" (the way, otherwise know as the Tao or Japanese Do - AikiDo, KenDo, JuDo, etc. ?), which means the way of nature. They believed that "what will happen will happen." It was pointless to obey a tradition or doctrine, but it was equally pointless to rebel against it. Daoist monks did not have all the rules that the Buddhists did. They did not have to cut their hair like the Buddhist, and they were allowed alcohol and meat. They were even allowed to have sex (they had sex techniques like Yoga's tantric sex) and marry, which the Buddhists were absolutely forbidden to do. This tendency of the Daoists to be more open-minded than the Buddhists carried over into how they worked for enlightenment.
There is another important fact. Since the Daoists and Buddhists shared essentially the same goal and had many practices and philosophies in common, both worshiped the same Buddha and followed the same philosophy in many ways, Daoist and Buddhist monks often studied together and became close friends. In China it is often said that "Fo Dao Yi Jia" which means "Buddhism and Daoism are one family." Before Da Mo (Chinese name for Boddhidharma who brought Buddhism from India to China), the Daoist already knew many of the Buddhist methods of cultivation. Afte Da Mo's death, they naturally were able to acquire his new secret methods of Qi cultivation. Eventually, in addition to the traditional Daoist texts, the Daoist libraries also had a considerable number of Buddhist training documents."
Sorry if I made any spelling or grammatical mistakes above. I typed that manually. Anyway, I'm a Chinese and my family brought me up with both Taoist and Buddhist practices but when I asked, they didn't know which was Taoist or Buddhist. They simply named it Chinese culture so that's how deeply blended the both traditions are. In fact, they are so deeply rooted in Chinese culture that most Chinese don't know what true Buddhism or true Taoism is about. They think it is all about the strict customs, traditions and rituals. That is why most rebellious young Chinese gravitate towards other religions. Nevertheless, as quoted from the old Shogun TV Series, "I am Japanese first. Christian second." The Chinese are very much like the Japanese so it simply means that they are Taoist or Buddhist first (because it's how we were brought up) before any other religion when push comes to shove. Happened to me to until I was reacquainted with the ultimate truth. Check out my website at http://www.GreatDoubt.com if you want to know the heart of Buddhist and Taoist teachings without the labels and rituals.
Thanks! ^_^